The bank has today held a press conference to announce that they have decided to keep the repo rate at -0.50 per cent, as it has been for a while now. They say they want to start raising interest rates at a slow pace during the year while protecting the inflation level and trying to be cautious in their actions.
Not much has happened in recent years when the bank announced its decision on the repo rate
It has been lying still many times or may have been slightly lowered. The interest rate has been fixed at minus for a number of years. All the time, the pursuit of reaching the magical inflation level of 2 percent has been the deciding factor.
We are now at an inflation level close to 2 percent and the Swedish economy is performing well. You might think it should be time for a first raise? However, the bank has seen that although inflation is close to the target, the inflation rate has fallen slightly in recent months. Wages have also risen at a slower pace than expected.
For these reasons, you want to be even more cautious and not start raising interest rates too soon. They say that the forecast for the repo rate will remain the same as before and a first increase will come during the year. However, not yet.
The forecast for the repo rate
Last year, some votes have started to be raised, so it is time to start raising the repo rate again. A negative interest rate would be a kind of crisis measure that was put in place when it was really needed and many feel that it does not give as much of a negative interest rate anymore. Plus, Sweden today has a strong economy and inflation close to the target, so it’s not a direct crisis anymore.
However, the bank’s approach has always been very cautious and they have really tried not to scare inflation away by raising interest rates too early. They have been tremendously keen to keep interest rates low and to avoid increases precisely so as not to risk inflation. Maybe too cautious according to many.
However, the forecast for the repo rate has been quite similar for a long time. There have been no strange changes and it has not been written up. Rather, on the contrary – that you have let the interest rate be a little longer for a longer period than you had initially thought.
Today, the repo rate is kept at -0.5 percent, but sometime during the year, the first increase is expected to come. Maybe at the next message on April 26. Perhaps this is more likely to happen in the third quarter. At the beginning of 2019, the interest rate is projected to have been raised to -0.15 per cent and in 2019 it is expected that it will end up at plus again.
At the beginning of 2020, the forecast says that the interest rate will be 0.36 percent and 2021 at 0.88 percent. Of course, the forecast can be adjusted, but the bank has made very few and small adjustments in recent years, so if nothing too strange happens, they can certainly follow this.
More measures to reduce the risks of household indebtedness
Something that the bank and Stefan Ingves have long talked about is that they want to reduce the risk of Swedes borrowing too much and getting too much debt. This is especially so when the interest rate is so low and it is cheap to borrow.
It has been a common theme in their reports to address this topic and they have also taken some measures to reduce the risks. The most obvious has been the mortgage repayment requirement that was introduced in the summer of 2016. There has also been a new repayment requirement to be introduced in March this year, which is based on the old requirement with a debt ceiling.
The old repayment requirement meant that all new mortgages that had a loan-to-value ratio of down to 75% must repay 2% of their mortgages annually and from 75% to 50% must be repaid at least 1%. The new amortization requirement states that if you want to borrow an amount that exceeds 4 times their gross salary per year, you must add an additional 1% amortization on top of the old levels.
This means that you may have to repay either 3, 2 or 1 percent annually, depending on how high the loan ratio is. This means fairly high repayment levels for those who lend a lot of money in relation to their income and the idea is of course to get people to take out smaller loans.
In practice, this probably means that you have to look at a little cheaper housing when you buy, in order to bring down your monthly cost of living to a reasonable level. The amortization is obviously not a cost in that way, but more than an investment in the long term, but it is nonetheless money that needs to be paid out every month and that should be fitted into a monthly budget and it clearly affects how much you can spend in total on your accommodation .
Whether the amortization requirement is good or not as a solution to the Swedes’ indebtedness is not entirely clear and the impact has not been so great so far. The housing market has been red-hot and not even such a requirement has put any major stop to this, but it is conceivable that now with the build-up of the amortization requirement will become more noticeable. Amortizing 3 percent is quite a lot.