Sweden’s central bank left interest rates unchanged on Wednesday and shut off talk of a possible cut by the end of the year as the country’s economy recovers from a slowdown with inflation remaining low.
It said it still expects to keep rates on hold until some time in 2013. “The repo rate is expected to remain at this low level for just over a year,” it said.
The decision to hold the repo rate at 1.5 per cent matched the forecast of 10 out of 15 analysts’ polled by Reuters, while the other five had expected the bank to cut rates for the third time in a row.
“It is now possible to discern some positive signs. At the same time, inflation is low and expected to remain so over the coming year. Monetary policy needs to remain expansionary to support the recovery,” the Riksbank said in a statement.
The crown rose to a near two-week high 8.8350 versus the euro after the decision from around 8.8808 beforehand, with traders saying some investors had positioned for a possible rate cut.
The crown also hit a session high against the dollar of 6.7496 crowns.
The Riksbank said growth in the Swedish economy will be relatively slow this year and then pick up speed in 2013. It added that inflation will remain low over the coming year but that cost pressures will increase and contribute to inflation rising towards 2 per cent in 2013.
“They are too optimistic about the economy, but they revised down growth and employment somewhat. But we still believe they remain (too) optimistic,” said Torbjorn Isaksson, an analyst at Nordea.
Most recent indicators have pointed to an improvement after the export-dependent economy all but ground to a halt in the last quarter of 2011 as the debt crisis in the euro zone -Sweden’s key trading partner -took its toll.
But data last week showed a big contraction in industrial output, muddying the outlook for rates again.
“It is more hawkish than expected, even if the actual rate decision was not a surprise,” Claes Mahlen at Handelsbanken.
The Riksbank cut rates in December and again in February, and the majority of those polled last week forecast rates would be below 1.50 per cent by the end of this year.