Bunge highlights Swedish economic recovery and housing market resilience

Riksbank First Deputy Governor Aino Bunge noted that the Swedish economy began its recovery last year, with real economy developments broadly aligning with forecasts.

She anticipates a favourable economic trajectory as household purchasing power strengthens.

Bunge highlighted that inflation is expected to decline noticeably this year, partly due to a temporary VAT reduction on food.

While recent outcomes suggest low underlying inflationary pressures even without this effect, Bunge emphasized the need to examine January's details, consider electricity prices, and await further inflation data before the March forecast.

The significant appreciation of the krona last year also plays a role, requiring close monitoring of its pass-through to prices.

The Riksbank's current assessment is to maintain the policy rate at 1.75 percent for some time, though global geopolitical uncertainty could influence this outlook.

Bunge commented on the recent decline in housing investment and house prices, noting subdued developments.

Despite this, Swedish household indebtedness remains high internationally.

She emphasized the need for robust rules to safeguard household resilience during recovery.

Bunge warned against proposed easings of mortgage regulations, highlighting a critical flaw: the lack of an income-based cap on loan size.

She argued that borrowers might rapidly increase borrowing if requirements are eased, a risk to financial stability.

The Riksbank believes an income-based instrument should have been included as a stabilising brake.