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Riksbank - Central Bank of Sweden, Stefan Ingves: Swedish Economy in Good Shape

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Sweden’s top central banker Saturday said the country’s economy looked in good shape despite the slowdown in the global recovery, indicating Swedish interest rates will continue to increase. Riksbank Governor Stefan Ingves said in an interview on the sidelines of a meeting of central bankers here that the recovery in global trade would allow the Swedish economy to continue growing. “Growth will be good in the Swedish economy in the coming years,” Ingves said. His remarks suggest the central bank won’t change its plans to gradually raise interest rates as Sweden’s economy continues to improve.

Sweden became the second European economy after Norway to raise interest rates after the financial crisis, with the Riksbank increasing its key repo rate to 0.5% from 0.25% on July 1. At the meeting, however, the Riksbank said rates in the future would not have to be raised as sharply as previously thought given slower growth abroad. The Swedish economy continued to surge ahead in the second quarter, growing at its fastest rate since 2007 with domestic demand and exports fueling growth. The Riksbank raised its forecast for GDP growth to 3.8% from 2.2% in 2010, though it remained cautious for 2011 and 2012, lowering its estimates to 3.6% and 2.8%, respectively.

The remarks by Ingves appeared more optimistic than recent comments by Svante Oberg, a Riksbank deputy governor, who recently highlighted the significance of the Federal Reserve’s Aug. 10 decision to postpone its exit from monetary stimulus, a process that already has begun in parts of Europe. Oberg introduced slowing U.S. and Asian trends as a caveat to the Riksbank’s own economic outlook. Ingves, on the other hand, noted in the interview how Sweden was better placed than other countries to combat the recent financial crisis after it was forced to take drastic steps following its own domestic banking crisis in the early 1990s. Back then, banks were required to disclose expected losses immediately. The government quickly assigned values to bank assets, rather than let banks postpone reporting losses and take gradual write-downs. Over time, Sweden also took steps to improve its fiscal situation, making it better prepared when the new crisis hit in 2008, Ingves said. “That meant that when world trade bounced back, it was easier for us than many others,” Sweden’s central banker said.

Sweden’s Rikbank holds its next monetary policy meeting Sept. 1. A majority of economists expect the central bank to raise interest rates again.

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