Economists Doubt Riksbank Rate Hike Plan, But Households Don't

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Sweden's central bank may have doubters among economists and currency traders that it will be able to continue raising interest rates, but the nation's households aren't taking any chances.

Mortgage-rate expectations among Swedish households have jumped in recent months after the central bank raised rates for the first time in more than seven years in December and said it plans to increase again in the second half of this year.

As a result, more and more households are now choosing fixed-rate mortgages with longer maturities, rather than short, floating rate loans. That's a welcome development for the Riksbank, which has long warned about the reliance on variable rates and high household borrowing growth.

Households' conviction that higher rates will come, coupled with stricter borrowing requirements and a housing-price correction in late 2017, have already dented their appetite for loans. Household borrowing slowed to 5.4 percent in January, the lowest growth rate since May 2014.

If the rate increases will come is another question. While the Riksbank last month reiterated its plans to raise the repo rate for a second time in the second half of this year, many economists are skeptical. Danske Bank A/S and SEB AB don't expect those plans to materialize after consumer-price increases fell short of the central bank's forecast in January.

Nordea Bank Abp expects a rate increase in the fourth quarter, but has said it sees "the risks to this view as skewed toward a later hike or no hike at all."

The krona has also slumped this year, making it the worst performer among major currencies. That's a sign that the currency market doesn't foresee any particular increase in rates.

To contact the reporter on this story: Love Liman in Stockholm at jliman1@bloomberg.net

To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Niklas Magnusson, Jonas Bergman

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