By CentralBankNews.info
    Sweden’s central bank slashed its benchmark repo rate by a larger-than-expected 50 basis points to 0.25 percent as it cut its forecast for inflation and said it didn’t expect any increase in the interest rate until the end of 2015.
    Sveriges Riksbank, which last cut its rate by 25 basis points in December but has seen consumer prices fall for the last five months, cut its inflation forecast for 2014 to minus 0.1 percent from its previous forecast in April of 0.2 percent.
    In 2015 consumer price inflation is forecast to rise to 1.3 percent from a previous forecast of 2.2 percent and in 2016 inflation is forecast to accelerate to 3.0 percent from a previous 3.2 percent.
    The Riksbank, which targets inflation of 2.0 percent, also lowered its projections for the repo rate to average 0.5 percent this year, down from April’s forecast of 0.7 percent, the 2015 forecast to 0.3 percent from a previous 1.1 percent, and the 2016 forecast to 1.3 percent from 2.3 percent, with the average forecast for the third quarter of 2016 seen at 1.45 percent, up from 0.25 percent in the third quarter of 2015. By the third quarter of 2017 the rate is seen at 2.35 percent.
    The Riksbank’s executive board decided on the sharp rate cut against the votes of Governor Stefan Ingves and First Deputy Governor Kerstin of Jochnick, both of whom voted for a 25 basis point cut.
    “The low interest rates are already contributing to a relatively rapid increase in household debt as a percentage of household income. An even lower repo rate will strengthen this tendency, thus increasing the risk of the economy developing in an unstable way in the long run,” the Riksbank said in its statement.
   The lower repo rate “makes it more urgent for other policy areas to manage the risks linked to household indebtedness and to developments in the housing market,” the central bank said, calling for measures that directly reduce households’ demand for credit and not just measures that strengthen the resilience of the banking system.
   The central bank’s forecast for Swedish economic growth was also lowered for this year, but slightly raised in coming years. Gross Domestic Product is forecast to expand by 2.2 percent this year, up from 2013’s 1.6 percent, but down from April’s forecast of 2.7 percent.
    In 2015 GDP is seen rising by 3.3 percent, up from a previous forecast of 3.2 percent, and in 2016 by 3.1 percent, up from 2.8 percent.