Sweden may be at the end of a three-year tight cycle, as the Central Bank raised the key rate to 4.75%, and it is expected to stay there, but will it help keep its exchange traded fund (ETF) in somewhat better shape?

The rate hike was simply used to keep inflation from infecting other areas of the economy. Lower oil prices, mixed with weak economic growth both in Sweden and elsewhere gave way to a looser monetary policy than forecast, says Niklas Pollard and Adam Cox for Guardian UK.

At least inflation is forecast to be lower in the coming years: consumer prices are forecast to be 3.2% next year, and 2% the following year. This year, inflation is expected to be 3.9%.

Sweden’s National Finance Management Authority raised its estimated budget surplus forecast, as well, but lowered its estimates for the next two years because of a worsening economic outlook. The surplus owes much to higher proceeds from the government’s privatization scheme. The economic climate is in a state of deterioration and central government finances are at risk. A sharp downward revision of tax revenue has resulted.

Many of the global markets are feeling pain right now, and the iShares MSCI Sweden Index (EWD) doesn’t seem to be any exception. It’s down 21.8% year-to-date.

Tags: Europe, EWD, Sweden