Nr. 12-2011 Published monthly by:
The Swedish Chamber of Commerce
in Estonia

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The Swedish economy is developing strongly - The recovery in the world economy is continuing. Trade between countries is increasing and this benefits Swedish exports and Swedish investments, says Riksbanken, the Swedish Central Bank, commenting their July 1st repo rate raise to 0,5%.

The repo rate is the rate of interest at which banks can borrow or deposit funds at the Riksbank for a period of seven days and is an instrument for Riksbanken's overriding objective to keep the annual change in the consumer price index at 2%.

- The Swedish economy is developing strongly following the severe downturn, continues Riksbanken's comments. The repo rate now needs to be raised gradually towards more normal levels to attain the inflation target of 2% and to ensure stable growth in the real economy. The Executive Board of the Riksbank has therefore decided to raise the repo rate by 0.25 of a percentage pointto 0.5%. At the same time, economic growth abroad is expected to be lower, which means that the repo rate in the longer term will not need to be raised as much as was previously assumed.

- Inflationary pressures are currently low, but are expected to increase as economic activity strengthens. Another factor is that household indebtedness has increased significantly in recent years. At the same time, the weaker development of the economies of the euro area means that the repo rate in the longer term is not expected to be raised as rapidly as was previously assumed. Also contributing to the normalization of monetary policy is that the first of the three fixed-interest rate loans granted to the banks in 2009 matured on Wednesday June 30th, and will not be replaced by a new loan at a low, fixed interest rate.

- Households have become increasingly optimistic and consumption is rising. Following the substantial fall in GDP, the recovery in the Swedish economy is now recovering on a broad front and employment is increasing steadily, although unemployment is still high. The uncertain public finances situation abroad means at the same time that many countries need to tighten their fiscal policy substantially to reduce their budget deficits. This tightening is expected to dampen GDP growth in the euro area, which will also hold back GDP growth and inflation in Sweden in the long run, concludes Riksbanken.


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