Stockholm, Dec. 5 (Bloomberg) -- Sweden's central bank unexpectedly cut interest rates for the second time in less than a month to underpin a recovery in the biggest Nordic economy. The Riksbank pared its benchmark repo rate a quarter percentage point to 3.75 percent, a nine-month low, after trimming it by the same amount on Nov. 15. Thirteen of 18 analysts polled by Bloomberg News expected the bank to keep rates unchanged. Swedish exporters such as Ericsson AB, the world's biggest maker of mobile-phone networks, and tool company Sandvik AB are eliminating jobs as they grapple with slower demand. The European Commission last month cut its forecast for 2003 growth in Sweden to 2.2 percent from an earlier prediction of 2.8 percent. ``There's no strong recovery in sight just yet,'' said Johann Guggi, who helps manage 100 billion kronor ($11 billion) in bonds at Svenska Handelsbanken AB. The European Central Bank will probably reduce its 3.25 percent rate by a half point today, according to 22 of 30 analysts surveyed by Bloomberg News. The U.S. Federal Reserve last month trimmed its benchmark rate by a half point to a 41-year low of 1.25 percent to fuel a rebound in the world's biggest economy. The yield on Sweden's three-month interest-rate futures contract maturing in March fell 12 basis points to 3.80 percent at 9:42 a.m. in Stockholm. A basis point is 0.01 percentage point.
Cooling Inflation
Swedish exports, which account for 44 percent of the economy, dropped 5 percent in October. General Motors Corp.'s Saab unit is cutting 1,300 jobs, or almost 20 percent of its Swedish workforce. Ericsson is slashing its jobs to fewer than 60,000 by the end of next year from 107,000 in 2000 as it tries to return to profit. Cooling growth is curbing inflation. The Riksbank expects inflation excluding interest payments, subsidies and indirect taxes of 1.9 percent a year ahead and 1.8 percent in two years, below its 2 percent target. ``In the time perspective towards which monetary policy is aimed, inflation will be slightly below the target level, which is the reason for lowering the repo rate,'' the Riksbank said in a statement on its Web site. ``Developments in the real economy remain weak.'' Some are already cutting prices as demand ebbs. SAS has lowered fares on routes to Amsterdam, Brussels and Paris from Stockholm by as much as 57 percent to spur sales. ``The Riksbank's big worry is not inflation anymore, it's growth,'' said Peter Kaplan, an economist at ABN Amro in Stockholm.
Recovery Signs
Swedish consumer confidence stayed close to its lowest level this year in November and manufacturing confidence declined for the third straight month. Still, growth is set to accelerate next year from this year's 1.6 percent as the global rebound gains pace, the European Commission said last month. Recent U.S. reports point to a pickup in growth. Consumer spending in the world's largest economy gained 0.4 percent in October, the biggest increase in three months. Volvo AB, the world's No. 2 maker of heavy trucks, said last month October truck deliveries rose 11 percent, led by rising U.S. demand. Sweden's unemployment rate fell to a five-month low of 3.7 percent in October, helping lift consumer spending. Clothing retailer Hennes & Mauritz AB's October sales rose 26 percent, the most this year, while passenger traffic at Scandinavian Airlines System, the biggest Nordic carrier, increased 12.6 percent. With growth recovering and unemployment falling, some analysts expected inflation concern to hinder a rate cut today. Inflation topped the central bank's 2 percent target in October for the 18th of 19 months and the Municipal Workers' Union said Tuesday it will seek pay increases of at least 5.5 percent. //www.quote.bloomberg.com