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Swedish central bank expects rates to rise at slower pace

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Swedish central bank expects rates to rise at slower pace

Sweden's central bank maintained its repo rate at negative 0.25% and said it now expects the rate to increase at a slower pace than previous projections amid worsened sentiment and looser monetary policy abroad.

The Sveriges Riksbank said GDP growth abroad is slowing, while the U.S.-China trade war and Brexit uncertainty have weighed on sentiment this year, spurring various central banks across the globe to ease monetary policy.

The Riksbank now expects the Swedish economy to grow by 1.5% in 2019 and 2020, compared with earlier projections of 1.8% and 1.6%, respectively. The central bank noted that inflation remains largely in line with its forecast though recent figures were higher than expected, and the slowdown in labor market appears to be happening faster than anticipated.

"The economic prospects are based on the repo rate being raised at a slower rate in the period ahead than in the previous forecast," the Riksbank said. The central bank still expects to raise its key rate toward 2019-end or in early 2020, though the projected rate by 2020 and 2021 now averaged at zero and 0.2%, respectively, compared with previous forecasts in July of 0.1% and 0.5%.

"Overall, we think that the executive committee has somewhat underplayed the weakness of the domestic economy while there was no reference to declining inflation expectations which had warranted significant attention in the past," wrote Neal Kilbane of Oxford Economics, casting doubt over the central bank's ability to maintain its hawkish stance in the current scenario.