Household Debt No Threat

Eva Srejber, the deputy governor of the Swedish central bank (the Riksbank) said household debt was not at a level that could threaten financial stability even if unemployment and interest rates rose.

Srejber told the daily Dagens Industri that ”neither house price development nor household debt show any signs of clear imbalances in Sweden.”

The Riksbank has said in the past it was watching the development of household debt, as the historically low repo rate of 2.0 percent encouraged households to borrow to buy houses. In 2003 the debt rose by nearly US $18 billion and in the first nine months of 2004 to more than US $16 billion.

Despite economic growth of almost 4 percent in 2004, unemployment rose to 5.3 percent in December from 4.9 percent in November.

The Riksbank, targets inflation of 2 percent with a margin of plus or minus 1 percentage point over a two year horizon. Inflation has long been well under the bank’s target.

Consumer prices in December were up 0.4 percent from a year earlier and inflation expectations are low.

Even though the Swedish economy is seen expanding by more than 3 percent in 2005, the Riksbank does not expect inflation to start picking up until 2006.