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Investing.com -- The Riksbank, Sweden’s central bank, has decided to keep the policy rate steady at 2.25%, according to an announcement made this morning.
These changes, including a reshaping of trade policy and a significant rise in defense expenditure in Europe due to a changed security situation, have had some impact on Riksbank’s forecasts, but the degree of uncertainty remains high.
The CPIF inflation rate, which is higher than expected, is projected to stay between 2 and 3% for the rest of the year. This is largely due to an unusually large contribution from the CPI basket effect and a rapid increase in certain food prices.
However, factors such as a more normal CPI basket effect, slower food price increases, a stronger krona, and stable inflation expectations are expected to stabilize inflation close to 2% next year.
The Swedish economy is in a recovery phase, but the labor market’s rebound is expected to take a bit longer, the central bank said. Despite these factors, the outlook for inflation and economic activity remains largely intact, suggesting that the previously communicated monetary policy plan should be followed.
Risks that could affect the outlook for inflation and economic activity, and thus monetary policy, are linked to both international developments and Swedish economic activity. The inflation uptick at the start of the year is considered temporary, but the Executive Board is keeping a close watch for any contagion effects that could prevent inflation from falling back as expected.
Riksbank also took note of unusually high uncertainty abroad due to the escalating trade conflict and rapidly changing security situation. Domestic demand uncertainties, including household consumption, corporate investment, and the economic impact of increased defense spending, also add to the overall economic ambiguity.
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