Sweden’s central bank cut interest rates for the second time in a row on Thursday as it sees its export-dependent economy grinding to a near halt this year due to the eurozone crisis.
The Riksbank said it now expects to keep rates unchanged until 2013, but analysts said signs of a worsening slowdown could force it to cut rates once more.
Citing the impact of the slowdown in most of Europe, the bank cut its key repo rate by 25 basis points to 1.50 per cent, after lowering it in December for the first since July 2009.
It also halved its GDP growth forecast for this year to 0.7 per cent. “There is considerable uncertainty about economic development abroad,” the Riksbank said in a statement.
“The public-finance problems in the euro area in particular may become more serious and have more negative effects on the Swedish economy.”
Thirteen of 18 analysts polled by Reuters last week forecast a 25 per cent basis point cut. Some said it would be an unusually close call between that and leaving rates unchanged due to the uncertain economic outlook for the euro zone. Sweden’s economy bounced back fast from a 2009 recession, peaking at annual growth of 7.2 per cent in the fourth quarter of 2010 and continuing to grow at a healthy pace for most of 2011.
But exports, central to Sweden’s economic performance, are slowing. Output is expected to have contracted in the fourth quarter of 2011 compared with the previous three-month period. “There is a good chance they (the central bank) will have to revise again because we ourselves think GDP and inflation will be lower than the Riksbank sees right now,” said Michael Grahn, an analyst at Danske Markets.
Like neighbouring Norway, Sweden has reversed its moves last year to tighten monetary policy as it looks to limit gains in its currency against the ailing euro that hurt its exports.
Riksbank Governor Stefan Ingves said exports had stopped growing and would only pick up again when the global economy gets back on its feet.
“We have a period behind us with a very strong increase in exports. That period has now come to an end,” Ingves told a news conference.
From gulf today