Sweden's central bank on Wednesday decided to retain the benchmark repo rate unchanged at 1.5 percent as expected after cutting the rate twice since December last year, to support the economy amid financial turbulence abroad.
The Executive Board of the Riksbank said it has also decided to revise the repo-rate path downwards somewhat "as a result of the poorer outlook abroad." Repo rate is expected to remain at this low level for just over a year, the Board said.
But as inflationary pressures increase, the repo rate will also need to be gradually raised. However, the rate may need to be lower if the situation in the euro area is problematic and could worsen, and trigger further negative effects on the Swedish economy, the policymakers at the central bank said.
The Board appeared to be very much concerned about the "unease in Europe" which is "casting a shadow over the Swedish economy." "There is considerable uncertainty concerning economic developments," it said in a statement.
Economic growth in Sweden is expected to be weak for some time to come due to subdued exports and weak economic sentiment. However, the economic activity will strengthen as the unease in the euro area abates.
The central bank, at the same time, upped the gross domestic product forecast for this year to 0.6 percent from the April projection of 0.4 percent. However, it slightly scaled back the growth projection for next year to 1.7 percent from 1.9 percent estimated earlier.
Inflation is low at present, which is mainly due to cost pressures being low and the krona having strengthened after the financial crisis 2008-2009, the Executive Board noted.
The bank lowered the inflation outlook to 1.1 percent in 2012 from the April forecast of 1.2 percent. The forecast for 2013 was cut to 1.7 percent from 1.9 percent.
Deputy Governors Karolina Ekholm and Lars Svensson entered reservations against the decision to keep the repo rate unchanged and against the repo-rate path in the Monetary Policy Report. They both advocated a lowering of the repo rate to 1 percent and a lower repo-rate path than in the report.
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