Swedish cbank signals steady rates as growth slows

Euro-outsider Sweden's central bank signalled on Jan. 29, 2001, its key repo rate would remain on hold at 4.00 percent, 75 basis points below the euro zone's steering rate, at this week's monetary policy meeting. Riksbank Governor Urban Backstrom said in a speech a slowdown in economic growth in Sweden was reducing the need for a further tightening of monetary policy.
Euro-outsider Sweden's central bank signalled on Jan. 29, 2001, its key repo rate would remain on hold at 4.00 percent, 75 basis points below the euro zone's steering rate, at this week's monetary policy meeting. Riksbank Governor Urban Backstrom said in a speech a slowdown in economic growth in Sweden was reducing the need for a further tightening of monetary policy.

"The slowdown which so far seems to be going on in the Swedish economy is in a way to be welcomed," Backstrom said in a prepared speech to a conference of shareholders. "A limited retardation helps us to adjust the development of demand to the long-term path of growth and thus reduces the need for further interest rate hikes," he said.

The yield on Swedish two-year government bonds fell two basis points to 4.18 percent and the yield on 10-year state paper eased by one basis point to 4.93 percent. The crown weakened slightly against the dollar and was broadly unchanged against the euro .

Marie Giertz, an economist at Handelsbanken, said Backstrom's speech made it clear that the Riksbank's steering rate would remain unchanged for some time - a scenario she said had been largely discounted by the market. "The speech was quite neutral and balanced. One may have thought that it could have been even more doveish after what has happened both regarding the Swedish slowdown and the international turbulence," she said.

The Riksbank, which targets an average inflation rate of two percent over the business cycle, raised its key repo rate to 4.00 percent from 3.75 percent in early December, signalling at the time that further increases might be necessary.

WEAKER GROWTH

But latest economic data has pointed to slowing economic expansion and subdued inflation pressures in Sweden, where growth has been more robust and inflation and unemployment lower than in the euro area. Swedish Finance Minister Bosse Ringholm said in a speech on Jan. 29 economic growth in Sweden would be weaker than last year's estimated 3.8-4.0 percent. The latest official data showed Swedish GDP growth slowing to 4.0 percent year-on-year in the third quarter of 2000 from 4.3 percent in the second.

"To avoid a situation with mounting imbalances, in time economic growth in Sweden will have to start slowing down to a rate that is sustainable in the longer run," Backstrom said. In Sweden, sustainable growth was in the region of two to 2.5 percent per year, he said, noting gross domestic product had increased on average by three percent per year since 1993. "In the coming years there will accordingly have to be some adjustment of demand to the Swedish economy's long-term growth trend," Backstrom said.

"There are increasingly clear signs of a slowdown in the U.S. economy. In Europe's euro area, too, activity has been somewhat weaker than expected," he said. The Riksbank's quarter percentage point rate rise last month combined with the global economic slowdown "are tending to adjust the expansion of demand towards the long-term growth path", Backstrom added.

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact info@centralbanking.com or view our subscription options here: http://subscriptions.centralbanking.com/subscribe

You are currently unable to copy this content. Please contact info@centralbanking.com to find out more.

You need to sign in to use this feature. If you don’t have a Central Banking account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account

.