By Nina Adam
Interest rates in Sweden are set to rise in 2018, the Riksbank said Wednesday, but added that it won't act hastily given new uncertainties about the outlook for inflation and to avoid a sharp appreciation in the national currency, the krona.
Sweden's central bank kept the repo rate at a record low of minus 0.5% and confirmed that "slow repo rate rises are set to be initiated during the second half of this year."
The Riksbank, defending its decision to stay on hold despite strong economic growth in Sweden and among its main trading partners, said that domestically generated inflation has been somewhat weaker than expected.
Illustrating this trend, the Riksbank revised down its key inflation estimate, or CPIF, to 1.8% in 2018 from 2.0%. If confirmed, inflation in Sweden would be slightly below the Riksbank's 2% target this year.
"It has taken a long time to bring inflation and inflation expectations back to 2%, and the uncertainty surrounding the development of inflation means that monetary policy needs to proceed cautiously," the bank said. "It is also important that the krona does not appreciate too quickly."
A stronger currency hurts the international competitiveness of Sweden's exporters and also reduces the price of imports, weighing on the outlook for inflation.
Dominic Chopping contributed to this article.
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