Swedish interest rates up again

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Swedish interest rates up again

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Sweden’s central bank has put up its main interest rate from 1.25 percent to 1.50 percent. It also forecast slightly faster rate hikes ahead. That is to keep inflation within target and head off a potentially dangerous build up in household borrowing.

Sweden’s economy, recovering from a recession two years ago, is now one of Europe’s fastest growing. The central bank has raised rates at its last five meetings.

But the forecast for a slightly faster pace of monetary tightening was less aggressive than expected by investors and the Swedish currency – the crown – slipped from its highs before the announcement.

The currency has soared against the euro due to the strong economic growth and the fact European Central Bank rates have been held at a record low 1.0 percent.

The Riksbank said in a statement: “To stabilise inflation close to the target of two percent and to avoid resource utilisation being too high, the repo rate needs to gradually increase.”

It said it also wanted to head off a housing bubble: “Household debts have increased substantially in recent years. If these debts continue to increase at a much faster rate than incomes over a long period of time, there is a risk that imbalances will build up in the Swedish economy.”

The bank kept its forecasts for Swedish growth this year at 4.4 percent after an expected 5.5 percent in 2010, which it said was a higher pace than economies in the euro zone.

Sweden’s rapidly recovering economy grew 6.9 percent year-on-year in the third quarter of 2010 and its inflation rate hit 2.3 percent in December.