Saturday, June 23, 2007

SWEDISH CENTRAL BANK RAISES KEY INTEREST RATE

"Inflation is the Riksbank’s particular responsibility. The Riksbank’s objective is to maintain inflation at around 2 per cent a year."


The Swedish Riksbank raised a key interest rate by 0.25% on Wednesday, to 3.5%, and promised even further hikes by the end of the year. Recent economic overview on Swedish economy showed a strong slowdown of productivity growth and strongly growing wage costs resulted in a tight cost pressure which inevitably urged the increase in repo rate to keep the economy on competitive edge to ease the possible inflation volatility. The repo rate is expected to be around 4 percent at the end of the year. Over the coming years it is probable that the interest rate will need to be raised further. This action is about to be taken soon and could suit Sweden's inflation targeting strategy performed by Riksbank, the oldest central bank in the world. Over time, the repo rate could be further increases, depending on wage, cost and productivity dynamics. To ease the inflation pressures as well as the volatility, the labor market bargaining pressures are ought to be eased and wage settlement should be completely separated from central agreements which are the heaviest threat to the economy in the course of long-term growth and reversing inflation pressures and the overheating of the economy.

1 comment:

Manuel said...

It seems that Sweden is acting prudently in the midst of the present global economy tendencies. Is it this a worthy lesson to learn about?