(Updates with krona in fourth paragraph.)
Nov. 23 (Bloomberg) -- Swedish central bank Deputy Governor Barbro Wickman-Parak said policy makers may cut interest rates if Europe’s debt crisis persists, signaling the bank is ready to reverse this year’s cycle of rate increases.
“What would prompt us to adjust rates down? That would be if we get a prolonged financial crisis,” Wickman-Parak said yesterday at a seminar in Stockholm.
Governor Stefan Ingves said Nov. 10 the bank is ready to do what’s necessary to ensure stability as the largest Nordic economy is “highly affected” by the turmoil in Europe. The bank last month kept its repo rate unchanged at 2 percent for a second meeting after raising seven times since July last year.
The krona slid 0.3 percent against the euro to trade at 9.2434 as of 7:36 a.m. in Stockholm. Against the dollar, the krona lost 0.6 percent, making it today’s worst performing major currency after the Australian dollar against both the greenback and the euro.
Euro area leaders have yet to act on a pledge to boost the region’s rescue fund to 1 trillion euros ($1.4 trillion) from 440 billion euros as the crisis threatens to engulf Italy and Spain. In Norway, which isn’t a member of the European Union, central bank Governor Oeystein Olsen said in a Nov. 10 interview he is willing to cut rates as policy makers across the globe shift into crisis mode.
The Riksbank will cut its benchmark interest rate to 1.9 percent in the next 12 months, according to a Nov. 9 TNS Sifo Prospera survey of money market participants commissioned by the Riksbank.
Swedish central bank policy makers last month cut the forecast for rate increases, estimating the benchmark will average 2.3 percent in the fourth quarter of next year, down from 2.6 percent previously.
Inflation last month slowed more than economists expected, giving the central bank more scope to ease policy. October prices, adjusting for the impact of interest rate changes, rose 1.1 percent from a year earlier, compared with a 1.5 percent increase in September, the statistics office said Nov. 10.
Prices by that gauge, also called the CPIF measure of inflation, are a better guide than headline inflation in the current situation for the Riksbank to determine where interest rates should be, Wickman-Parak said.
The Riksbank last month cut its economic growth forecast for 2012 and sees gross domestic product expanding 1.5 percent, versus a previous prediction of 1.7 percent. Inflation adjusting for mortgage costs will remain below the Riksbank’s 2 percent target until 2014, according to the bank’s annual average estimates.
--Editors: Tasneem Brogger, Jonas Bergman.
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