By Charles Duxbury
STOCKHOLM--Swedish central bank policy makers face a tricky
balancing act setting interest rates for the Nordic state amid
slowing growth and high levels of household debt, the bank's
governor said Tuesday.
"The weaker economic prospects and the low inflationary
pressures justify keeping the repo rate low. This will help
inflation to rise towards the target of 2%," Stefan Ingves said in
a speech, published on the central bank's web site, which he made
in the northern Swedish town of Lulea.
"However, we also need to take into account the risks associated
with household indebtedness in our repo rate decisions," he
said.
The Riksbank last cut its benchmark interest rate, to 1.25%, in
September but it left it unchanged at a policy meeting in
October.
The central bank has said this historically low rate is
justified by its forecast that economic output growth will slow to
0.9% this year from 3.9% last year. It expects the inflation rate
to be below 1% on average both this year and next.
But the majority of rate setters on the bank's six-strong
executive board, that includes Mr. Ingves, have made it clear they
are worried that lowering borrowing costs further could prompt
households to borrow too much, and this could leave them and the
wider economy vulnerable.
"As household indebtedness is now very high, the households are
more vulnerable to factors such as a fall in housing prices," Mr.
Ingves said in his speech Tuesday. "The course of events in several
countries during the financial and debt crisis shows that we must
take risks of this type seriously."
But such worries may not be enough to stay the executive board's
hand at its next meeting late this month. Most economists expect
the rate setters to lower the main rate to 1%.
Write to Charles Duxbury at charles.duxbury@dowjones.com