Riksbank says slowdown worse than feared, cuts key policy rate

Sveriges Riksbank lowered its key policy rate by 0.25 percentage points to 1.50 per cent today. The Central Bank of Sweden said that economic outlook has weakened and inflation expectations are low. Riksbank also said it expects the REPO rate to remain on this level until 2013. Clearly Riksbank also worried about the effect of strong Swedish Krona on the country’s exports. The bank attributed the low demand for Swedish products on sluggish growth in the Euro area.

Local households also remain cautious and Riksbank does not expect the sentiment to improve until the Euro area pressures subside. This means that the growth prospects for this year are low. Growth for 2013 is expected to be better although there is great uncertainty. Riksbank says that the economic slowdown has been worse than expected.

The REPO rate path may vary debending on economic outlook. Two Deputy Governers wanted a larger rate cut and even further cuts predicted in the path in the months ahead. Swedish Krona has retreated around half a per cent vs. major currencies today.