Sweden's central bank quashed expectations for early rate cuts on Wednesday, keeping interest rates unchanged and saying they were likely to remain that way for more than a year.
It saw a glimmer of hope for economic growth that has taken hits from the debt crisis in the neighbouring euro zone. The central bank, the Riksbank, has cut rates twice recently in response to slumping exports.
Ten of 15 economists polled by Reuters had seen unchanged rates on Wednesday and five others a 25 basis points cut. But most expected a further rate reduction some time this year.
"We see small rays of light even if the development is fragile," central bank chief Stefan Ingves told a news conference after leaving the repo rate unchanged at 1.50% and saying it would stay that way for "just over a year".
"We believe the sharp drop in growth is behind us and that economic activity will pick up, if not dramatically so, during the coming years in a way that will in time call for a move to raise rates," Ingves added.
The Swedish crown rose to its highest level against the euro in nearly two weeks after the bank's decision, but the gains were limited. Analysts and traders said further evidence of a recovery in the Swedish economy will be needed for it to strengthen further.
Recent indicators have pointed to a recovery in Sweden after a dip in output in the final quarter of 2011, though data last week showed a big fall in industrial production.
The Riksbank nudged lower its forecasts for economic growth to 0.4% this year, rising to 1.9% next year. It saw low inflation over the coming years, rising to its 2% target in 2013. Inflation was 1.5% year-on-year in March.
In the last three months of 2011, the Swedish economy expanded just 1.1% year-on-year, against a record 5.5% expansion in 2010.
OPTIMISTIC
The Riksbank's stance took some analysts by surprise and prompted criticism that it was too optimistic.
Swedbank analyst Knut Hallberg, for example, had expected a quarter-point cut but has now had an about-face.
"Our estimate (now) is that there will be no further rate cuts unless something unforeseen happens. The next move on the part of the Riksbank will be a hike," he said.
But others disagreed. "We see downside risk in the Riksbank Swedish forecast, implying the possibility of a lower repo path ahead and possibly more policy softening in 2012," Handelsbanken analyst Anders Brunstedt said in a note.
The Riksbank cut rates in December and again in February.
As before, Deputy Governors Karolina Ekholm and Lars Svensson expressed reservations about the rate decision on Wednesday and against the repo rate path ahead.
They backed a cut in the repo rate to 1.0% and a lower rate outlook.
