Quite recently, the bank lowered the repo rate again. This time there was a 0.5% reduction so that the interest rate now stands at 0.25%, which was a larger reduction than expected. This gives us an even lower interest rate level in the country and cheap loans etc. Thought to go through a bit what this means and what the future looks like. Most people had expected a cut in the repo rate to 0.5 per cent in early June, but it was actually more than that.
The bank chose to set the new interest rate at only 0.25% instead
The main reason for this was that inflation was lower than expected and that there appears to be low inflationary pressure in general. To counteract this, one goes on a slightly larger reduction.
Otherwise, we have seen improved economic development in Sweden and the economy is strengthening, which is good. It is not just in our country but around the world and Europe has started to regain some momentum after a fairly tough period. Such signs are good but it has not been enough to stick to a small reduction in the repo rate (only 0.25% that we first thought it would be).
The idea of a low policy rate is to contribute to higher demand in our economy and thus drive inflation. With the help of such a low interest rate, we can also counteract some of the effects that international policy rates are so low and their effect on both inflation and our exchange rate. It is in this way that the bank justifies its reductions and hopefully it is a good measure.
Lower mortgage rates as a result of lower interest rates
When the policy rate is lowered in this way, it obviously opens up for the banks to review their interest rates. There is room to lower mortgage rates, which Bank did quite recently, for example. Their bond loans have been reviewed and, for example, the five-year interest rate has been reduced by 0.20%. However, the variable interest rate remains at the same level.
The low interest rates we now have are probably here to stay for a while. There will probably be no increases at all until the end of 2015. It is also likely to take up to three years before the repo rate goes up to 2 per cent, according to the bank’s interest rate forecast (although that forecast is not always completely correct). This means that we have a stable low interest rate, which we do not need to worry about. There is no particularly good reason for fixing their interest rates in the current situation, but it is a good place to stay at variable interest rates.
With the new low repo rate, the experts believe that floating interest rates will fall in the future
Right now they are around 2.65 per cent, but it is conceivable that they will end up near 2.25 per cent over time, which is good for mortgage customers. However, one should not settle for this. With such a large reduction in interest rates, opportunities are created to bargain on their mortgage. It may be different how much you can bargain depending on your starting position, but you can get an interest rate of 1.70-1.80% if you are a reasonably attractive customer or generally good at bargaining.