Swedish Riksbank hikes repo rate to 4.00 pct from 3.75 pct UPDATE

Swedish Riksbank hikes repo rate to 4.00 pct from 3.75 pct UPDATE

	Published : Tue, 30 Oct 2007 10:04 By : Agencies Print this Story

(updating with Riksbank economic and repo rate forecasts, comments)

STOCKHOLM (Thomson Financial) - The Riksbank said it has raised its key repo rate by 25 basis points to 4.00 pct, and reiterated that the interest rate needs to be raised further in the future.

'During the first half of 2008 the repo rate is expected to be around 4.25 pct. The Riksbank's view of the future repo rate path remains largely the same as in June,' said the Riksbank.

The central bank said it expects the interest rate increases to contribute to an inflation rate in line with its 2 pct target while still allowing for production and employment to develop in a balanced manner.

The bank left its CPI forecast for 2007 unchanged at 2.1 pct, but raised its forecast for 2008 to 2.9 pct from 2.3, and to 2.4 pct from 2.3 for 2009.

However it left its UNDIX measure of underlying inflation, and the index which it looks most closely at in determining interest rates, unchanged in 2007 at 1.1 pct, and unchanged in 2008 at 2.0 pct. For 2009 it trimmed its forecast to 2.0 pct from 2.1 pct.

The Riksbank also left its GDP growth forecast for 2007 at 3.1 pct, but cut it slightly to 2.8 pct from 3.0 pct for 2008, while leaving 2009 unchanged at 2.3 pct.

It said that although the Swedish economy is continuing to grow at a good pace with rising employment, there have been signs of weaker international growth, particularly in the US and the euro area.

'The slowdown in the United States and other countries, together with the recent unease in the financial markets, is expected to slow down growth in Sweden somewhat,' said the Riksbank.

The bank sees interest rates staying at around its forecast level for 2008 until around 2010. For the fourth quarter of 2009 it left its forecast for the repo rate unchanged at 4.4 pct. It added a new forecast for the repo rate in the fourth quarter of 2010 to be 4.3 pct.

'The Riksbank holds largely the same view of how the repo rate will develop in the future as was held in June,' said the bank, 'While domestic cost pressures indicate that the repo rate could need to be raised slightly more in the future, the financial unrest and international developments point in the opposite direction,' it said.

However it added that its forecast interest rate path: 'is a forecast, and not a promise'.

simon.richardson@thomson.com

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