Sweden cuts interest rates

Following on from what seems to be a coordinated move by European central banks, Sweden is the latest country to drop their interest rates by 0.5 percent and this represents the second rate cut this month as the country fights off the ill effects of the economic downturn.

In what is seemingly a U-turn by the central bank, the decision has been taken that the greatest fear is no longer that of inflation but that of severe reduction in economic growth.

The Riksbank has had to change policy as a result of the slowing economy resulting in the change in monetary policy as the real economy is proving far more problematic than the 2 percent ceiling inflation rate.

It is predicted that headline inflation will reach 3 percent this year and 1.6 percent by 2009 which is a lesser estimate compared to the 3.8 percent inflation that was espoused at the beginning of the year.

It is expected by many analysts that there will also be a further rate cut within the next six months albeit of smaller proportions of around 0.25 percent.

The government has thus far given 1.5 trillion krona in order to guarantee loans so that three of Sweden’s largest banks (Nordea Bank AB, Swedbank AB and SEB AB) can revive lending even though the losses from lending has dampened all of their profits.

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