Interest rate increases can stay at 75 points – despite inflation

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Published 21 November 2022 at 11.46

Economy. With 10.9 percent CPI inflation in Sweden, the Riksbank is expected to raise interest rates again on Thursday. But most analysts believe that the increase will stop at 0.75 percent – to please mortgage borrowers and the real estate industry. However, the forecast is uncertain going forward and among SEB's assessors it is predicted that Sweden will be forced to raise the policy rate to 4 percent (6–8 percent mortgage rate) in 2025.

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The monetary policy meeting will be held on November 23 and an interest rate announcement and monetary policy report will come on Thursday November 24, and will thus be outgoing Riksbank Governor Stefan Ingve's last.

< p>According to Infront's forecast survey, eight out of nine surveyed economists believe in a 0.75 percentage point increase, writes news agency Direkt. One economist surveyed believes in 0.5 percentage points and several others believe that the Riksbank will once again raise the interest rate by 1 percentage point, which the Riksbank did in September.

SEB's large survey of economists gives a similar picture. 85 percent believe that the policy rate will be raised by 75 points and 15 percent believe in an increase by 100 points, writes Dagens Industri.

In the SEB survey, the respondents are very divided in their view of where the key interest rate will be at the end of 2025. Expectations vary between 4 and 1 percent, writes Dagens Industri.

A key interest rate of 4 percent would mean that Sweden's development towards a deindustrialized, mortgage-driven economy would have to be fundamentally restructured, because it means a mortgage interest rate of between 6 and 8 percent.

According to economists that Ekonomiekot Extra spoke to, the Riksbank should actually raise the interest rate sharply, because core inflation continues to rise and food price inflation is at an unsustainable 17 percent.

However, there is a reason to let the interest rate increase stay at 0.75 percentage points, and that is the highly leveraged Swedish housing market and the even more highly leveraged Swedish real estate industry, which simply cannot handle anything other than zero interest, or at most today's symbolic interest rate.

At the beginning of November, the Financial Supervisory Authority released a report that warned that Sweden is heading for a financial and real estate crisis when the largest Swedish real estate companies cannot repay 500 billion in loans that are due soon.

During the crisis of the 1990s, the banks had entered the real estate industry with large loans, which dragged the banks along in the case when the rental market for commercial real estate collapsed at the beginning of the crisis. This time the companies have instead borrowed on the bond market – at an interest rate of around one percent – but now the interest rate is instead 7 percent. Something that the companies cannot handle, and if the Riksbank raises the policy rate, the alternative – bank loans – will not be that cheap either.