Sweden's Riksbank leaves repo rate unchanged

The Riksbank said inflation will be slightly higher in the short term than was previously expected. The bank's assessment is that CPI and underlying UND1X inflation will be 1.5% and 1.7% respectively in September 2002. These measures of inflation are seen at 2.1% and 2.0% respectively in September 2003.

The Riksbank revised downwards its growth forecast for Sweden over the next two years compared with its previous forecast. The bank now sees GDP growth of 1.3% this year, 2.2% in 2002 and 2.8% in 2003.

The Riksbank expects domestic inflation to fall again in spring 2002 as the effects of large price rises on, for example, foods, electricity and telecommunications fade out.

The bank said its overall assessment in its Inflation Report is that inflation will develop in line with its 2.0% target to be achieved within the next two years.

The current economic situation is "particularly" difficult to assess in light of the recent terrorist attacks in the U.S., the Riksbank said.

It cut the repo rate by 50 basis points to 3.75% 17 September in an attempt to boost consumer and corporate confidence in the wake of terror attacks.

Resource utilisation in Sweden is expected to be lower over the next couple of years, although it will increase in the latter part of the forecast period, the Riksbank said.

"An expansive economic policy, including tax reductions and lower real interest rates, as well as a weaker krona, will contribute to a recovery."