"If money isn't loosened up, this sucker could go down" - George W. Bush warned in September 2008

Thursday, September 2, 2010

Sweden tightens monetary policy, fear of asset bubbles prevents speedy closure of resource utilization and inflation gaps

Riksbank raised policy rate by 0.25 percentage points to 0.75 percent today. Interestingly, Swedish monetary policy decisions include central bank's three year forecast of future policy rates, according to which repo rate will be gradually increased to 3.8 percent by Q3 2013. Lars Svensson dissented, he preferred unchanged repo rate that gradually raises to 1.75 percent during next three years. In an earlier speech Svensson argued lower repo rate path would achieve a better outcome for both inflation and resource utilization. He also said that any risks linked to excess lending and rapid increases housing prices should addressed by supervisory authorities and monetary policy should not be affected. Recent appointee Karolina Ekholm also dissented. She agreed with a decision to raise repo rate by 0.25 percentage points, but preferred a flatter path of repo rates in the future.

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