04/07/2003 13:24
Sweden's Riksbank unexpectedly cut its benchmark interest rate by a quarter point, the fifth reduction in eight months, citing easing inflation and a delayed recovery in the Nordic region's largest economy.
The world's oldest central bank lowered its repo rate to 2.75 percent from 3 percent. Five of 17 economists surveyed by Bloomberg News expected a cut, the others forecast no change.
``The growth rate is absolutely too low in Sweden,'' said Jens Spendrup, chief executive officer of Spendrups Bryggeri AB, the nation's biggest brewer ``The cut will benefit my business. With lower interest rates it's easier to realize investments and to borrow money for those investments.''
Growth in Sweden, home to Ericsson AB and Volvo AB, has faltered on waning demand for exports, which make up almost half of gross domestic product. The $268 billion economy will expand 1.2 percent this year from 1.9 percent in 2002, the bank said last month. Underlying inflation will be lower than it earlier forecast.
The bank is ``worried about the economic developments'' both internationally and in Sweden, said Olle Holmgren, an economist at SEB AB in Stockholm who predicted the reduction. ``Still, it's first and foremost the easing inflation they are addressing.''
Sweden's 6 percent note due 2005 gained 0.12, or 12 kronor per 10,000-krona ($1,250) face amount, to 104.75 by 11 a.m. in Stockholm. Its yield fell 8 basis points to 2.87 percent. A basis point is 0.01 percentage point. The krona was at 7.994 to the dollar from 7.982 yesterday. It was at 9.176 to the euro from 9.167.
Economy Faltering
Swedish manufacturing shrank for a second month in June as growth in the biggest Nordic economy struggles to pick up because of slow demand from its largest trading partners and rising unemployment, a Swedbank AB survey showed earlier this week.
The unemployment rate climbed to 5.6 percent in June from 4.8 percent in the year-earlier period, rising for the eighth month, the Labor Board said today. In May, the jobless rate, which isn't adjusted for seasonal swings, was 4.4 percent. ``Over the past year, economic activity in Sweden and abroad has gradually deteriorated and the expected recovery has been delayed,'' the Riksbank said in a statement on its Web site. Today's ``decision is based on the picture of future inflation'' and ``new information about economic developments.''
Sweden's largest export market, the 12 countries sharing the euro, may expand less than 1 percent this year, the European Central Bank estimates. This, coupled with slowing inflation in Sweden, will lead to more rate reductions, economists have said.
Quicker the Better
``The quicker they lower rates the better,'' said Thomas Kristiansson, who manages the equivalent of $12 billion at SEB Asset Management in Stockholm. ``The economy is not doing well and growth will be around 1 percent this year and inflation is set to decline through the autumn.''
The Riksbank in June predicted underlying inflation, which excludes interest payments, indirect taxes and subsidies, will ease to 1.1 percent in a year, undershooting its 2 percent target. ``Inflation is expected to be below the inflation target both one and two years ahead,'' the Riksbank said.
The ECB may also trim borrowing costs further this quarter, economists predicted. It may reduce its key rate by a quarter point to 1.75 percent by the end of September, according to the median forecast of 21 economists surveyed by Bloomberg News.
Euro Region
The euro region's $8 trillion economy may grow zero to 0.4 percent in the second and third quarters, the European Commission has forecast. It didn't grow at all from January through March.
With the euro nations accounting for 40 percent of Swedish exports such as Volvo trucks and Electrolux AB refrigerators, Swedish manufacturing activity shrank in June for a second consecutive month.
Another Riksbank cut hinges on ``new information on economic developments in Sweden and abroad and the effects this may have on inflation prospects in Sweden,'' the central bank said.
The world's oldest central bank lowered its repo rate to 2.75 percent from 3 percent. Five of 17 economists surveyed by Bloomberg News expected a cut, the others forecast no change.
``The growth rate is absolutely too low in Sweden,'' said Jens Spendrup, chief executive officer of Spendrups Bryggeri AB, the nation's biggest brewer ``The cut will benefit my business. With lower interest rates it's easier to realize investments and to borrow money for those investments.''
Growth in Sweden, home to Ericsson AB and Volvo AB, has faltered on waning demand for exports, which make up almost half of gross domestic product. The $268 billion economy will expand 1.2 percent this year from 1.9 percent in 2002, the bank said last month. Underlying inflation will be lower than it earlier forecast.
The bank is ``worried about the economic developments'' both internationally and in Sweden, said Olle Holmgren, an economist at SEB AB in Stockholm who predicted the reduction. ``Still, it's first and foremost the easing inflation they are addressing.''
Sweden's 6 percent note due 2005 gained 0.12, or 12 kronor per 10,000-krona ($1,250) face amount, to 104.75 by 11 a.m. in Stockholm. Its yield fell 8 basis points to 2.87 percent. A basis point is 0.01 percentage point. The krona was at 7.994 to the dollar from 7.982 yesterday. It was at 9.176 to the euro from 9.167.
Economy Faltering
Swedish manufacturing shrank for a second month in June as growth in the biggest Nordic economy struggles to pick up because of slow demand from its largest trading partners and rising unemployment, a Swedbank AB survey showed earlier this week.
The unemployment rate climbed to 5.6 percent in June from 4.8 percent in the year-earlier period, rising for the eighth month, the Labor Board said today. In May, the jobless rate, which isn't adjusted for seasonal swings, was 4.4 percent. ``Over the past year, economic activity in Sweden and abroad has gradually deteriorated and the expected recovery has been delayed,'' the Riksbank said in a statement on its Web site. Today's ``decision is based on the picture of future inflation'' and ``new information about economic developments.''
Sweden's largest export market, the 12 countries sharing the euro, may expand less than 1 percent this year, the European Central Bank estimates. This, coupled with slowing inflation in Sweden, will lead to more rate reductions, economists have said.
Quicker the Better
``The quicker they lower rates the better,'' said Thomas Kristiansson, who manages the equivalent of $12 billion at SEB Asset Management in Stockholm. ``The economy is not doing well and growth will be around 1 percent this year and inflation is set to decline through the autumn.''
The Riksbank in June predicted underlying inflation, which excludes interest payments, indirect taxes and subsidies, will ease to 1.1 percent in a year, undershooting its 2 percent target. ``Inflation is expected to be below the inflation target both one and two years ahead,'' the Riksbank said.
The ECB may also trim borrowing costs further this quarter, economists predicted. It may reduce its key rate by a quarter point to 1.75 percent by the end of September, according to the median forecast of 21 economists surveyed by Bloomberg News.
Euro Region
The euro region's $8 trillion economy may grow zero to 0.4 percent in the second and third quarters, the European Commission has forecast. It didn't grow at all from January through March.
With the euro nations accounting for 40 percent of Swedish exports such as Volvo trucks and Electrolux AB refrigerators, Swedish manufacturing activity shrank in June for a second consecutive month.
Another Riksbank cut hinges on ``new information on economic developments in Sweden and abroad and the effects this may have on inflation prospects in Sweden,'' the central bank said.
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