Swedish central bank holds rate, plans earlier increase

STOCKHOLM (AFP) - Swedens central bank on Thursday held as expected its benchmark interest rate at a record low 0.25 percent but announced it would raise it earlier than planned as the Swedish economy strengthens.
The assessment now is that the upturn in economic activity rests on more solid ground and that there are therefore sound reasons for increasing the repo rate somewhat sooner than was assessed in December, the bank said in a statement.
On December 16, the bank said it would maintain the rate at 0.25 percent until the autumn of 2010.
In Thursdays statement, the EU-countrys central bank said it expected it would begin to raise the repo rate in the summer or early autumn. It predicted that the benchmark rate would reach 1.1 percent at the first quarter of 2011.
Economists from Swedish banks, among others, have warned holding the benchmark rate at its historic low for too long could help create a real estate bubble in the country.
The central bank revised downward its growth forecast for the Swedish economy, predicting a 2.5 rise in gross domestic product (GDP) for 2010.
In December, it had forecast a 2.7 percent level of growth for the year ahead and had estimated the 2009 recession at 4.5 percent. According to the central bank, GDP is to grow 3.4 percent in 2011 and 3.1 percent in 2012. After a 0.3 percent fall in 2009, prices are expected to rise 1.6 percent this year, the bank said.