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Sweden cuts borrowing costs more than expected, ECB rates unchanged

Sweden cuts borrowing costs more than expected, ECB rates unchanged
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Sweden’s central bank has slashed its key interest rate to a 0.25 percent from 0.75 percent, a larger cut than was expected.

The reduction in the cost of borrowing shows the bank is concerned about inflation and it wants to push consumer prices back up.

Inflation has been around zero in recent months, well below the central bank’s 2.0 percent target.

Sweden’s currency, the crown, fell to a three and a half year low against the euro in response.

In recent years the Swedish central bank has been focused on rising household debt.

That debt is some of the highest in Europe, at more than 170 percent of disposable income.

“It was bolder than what we had expected, of course,” said Olle Holmgren, an economist at SEB. “It shows that the inflation target is clearly back in the spotlight and it’ll take a while before they start to raise again.”

ECB leaves rates unchanged

Sweden is facing the same deflationary pressures as the European Central Bank is in the eurozone.

The ECB left its main interest rate unchanged at a record low of 0.15 percent on Thursday, holding off fresh policy action while it waits for stimulus measures announced last month to take effect.

The decision to leave rates unchanged was expected after the ECB cut them in June, taking its deposit rate below zero.

At the same time it launched a new round of long-term loans to boost lending, and signalling it could do more if necessary.

At Thursday’s meeting , the ECB kept the rate on bank overnight deposits at -0.10 percent, which means banks are paying to park their funds at the central bank, and held its marginal lending facility – or emergency borrowing rate – at 0.40 percent.

with Reuters