MNI: Sweden Riksbank Hikes Key Repo Rate By 25 bps to -0.25%

--Next Hike Expected H2 2019: Riksbank

     LONDON (MNI) - Sweden's Riksbank hiked the key repo rate by 25 bps to

-0.25% Thursday. The central bank said the next hike was expected in the second

half of 2019.

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     The full text of the Riksbank announcement follows:

     Repo rate raised to -0.25 per cent Economic activity is strong and the

conditions are good for inflation to remain close to the inflation target in the

period ahead. As inflation and inflation expectations have become established at

around 2 per cent, the need for a highly expansionary monetary policy has

decreased slightly. The Executive Board has therefore decided to raise the repo

rate from -0.50 per cent to -0.25 per cent. The forecast for the repo rate

indicates that the next rate rise will probably occur during the second half of

2019. With a repo rate of -0.25 per cent, monetary policy is still expansionary

and will thereby continue to support economic activity.

     Economic activity entering a more mature phase with rising cost pressures

The global economy, which has grown rapidly in recent years, is now entering a

phase of more subdued GDP growth, which is in line with the Riksbank's earlier

forecasts. Cost pressures are gradually rising abroad, and monetary policy is

moving in a less expansionary direction. However, there is still considerable

uncertainty over global economic developments, not least with regard to the

effects of Brexit and the trade conflict between the United States and several

other countries.

     Economic activity in Sweden is still strong, although GDP growth and

inflation have been weaker than expected. The employment rate is historically

high, companies are reporting major shortages of labour and cost pressures are

rising. The strong economic activity has contributed to inflation rising

gradually since 2014 and being close to the 2 per cent target in recent years.

     Conditions remain good for inflation close to 2 per cent Even though

inflation has been lower than expected, the conditions remain good for inflation

to stay close to the inflation target going forward. As inflation and inflation

expectations have become established at around 2 per cent, the need for a highly

expansionary monetary policy has decreased slightly. The Executive Board has

therefore decided to raise the repo rate from -0.50 per cent to -0.25 per cent.

The inflation forecast assumes that monetary policy stimulation will be

decreased slowly.

     Monetary policy needs to proceed cautiously It is important that economic

activity continues to be strong and has an impact on price increases. With a

repo rate of -0.25 per cent, monetary policy is still expansionary and will

thereby also continue to support economic activity. The pacing of rate rises in

the period ahead will be adjusted according to the development of the economic

outlook and inflation prospects. The fact that inflation has been lower than

expected recently illustrates that there is uncertainty over the strength of

inflationary pressures. The forecast for the repo rate therefore indicates that

the next rate rise will probably occur during the second half of 2019. After

this, the forecast indicates approximately two rate rises per year by 0.25

percentage points each time. Reinvestments of principal payments and coupons in

the government bond portfolio will continue until further notice.

     Important with measures to reduce the risks associated with household

indebtedness The low interest rates are exacerbating the risks linked to high

and rising household indebtedness, while the fundamental causes of the high

indebtedness still remain. It is essential, to ensure that the development of

the Swedish economy is sustainable in the long term, that measures are taken in

housing policy and taxation policy and that macroprudential policy is designed

appropriately.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com