The next interest rate decision will be tough as the Swedish central bank has to weigh high unemployment and low inflation against increasing risks of a housing bubble, said Deputy Governor Per Jansson.
“In the short term we’re seeing a tendency that the economy will weaken and, along with that, lower inflation,” he told reporters today in Stockholm. “We see, if anything, that the risks surrounding household debt and the housing market are increasing in the sense that house prices are showing a tendency to increase again.”
Jansson in April voted with the Riksbank’s decision to keep the central bank’s main lending rate unchanged at 1 percent for a second meeting, expressing concerns of a further build-up of record Swedish household debt. The bank delayed plans to raise rates by about a year to late 2014 after cutting its inflation forecast, citing a strong krona and the inability of companies to push through price increases because of weak demand.
Swedish gross domestic product grew an annual 1.7 percent in the three months through March driven by private consumption and a build-up of inventories, while net exports and investments weighed on the expansion.
While economic growth was “strong” in the first quarter, the inventory buildup means there are “risks for a backlash in GDP going forward,” Jansson said. “It’s not possible to spot a clear trend” in economic indicators, he said.
Unemployment (SWUERATE) in the $500 billion Nordic economy matched its highest level in almost three years at 8.4 percent in April. Consumer prices fell 0.5 percent compared with the Riksbank’s 2 percent inflation target the same month.
“Sweden is still relatively strong but a few clouds have appeared lately,” Jansson said. “Unemployment has shown a small tendency to develop in a worse way. Inflation is of course low. We had an outcome that was clearly below our forecast, which is of course worrisome.”
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