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Sweden Central Bank Hikes Rate By 75 Bps

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Sweden central bank lifted its key interest rate by 75 basis points and signaled additional hike early next year to tame inflation.

The Executive Board of Riksbank decided to raise the policy rate by 0.75 percentage points to 2.50 percent.

The central bank started tightening its policy in April, when the policy rate was zero percent.

“As the Riksbank is raising the policy rate more now, the risk of high inflation for a long time is reduced, as is the risk of even greater monetary tightening further ahead,” the bank said in a statement.

The bank projected the policy rate to be raised further at the beginning of next year to then be just under 3 percent. The central bank now estimates the policy rate to peak at around 2.8 percent in 2023 and to remain at that level throughout 2024 and 2025.

The Riksbank will deliver a further 50 basis point hike in February, to bring the policy rate to 3.0 percent, Capital Economics economist Andrew Kenningham said.

Beyond that, the economist expects no further change until the second half of 2024, by which time inflation might fall sufficiently for the central bank to begin cutting rates.

The bank said, “The risk of the current high inflation will become entrenched is still substantial, and it is very important that monetary policy acts to ensure inflation falls back and stabilizes around the target of 2 percent within a reasonable time.”

Riksbank upgraded its inflation forecast for 2023 to 9.3 percent from 8.5 percent and the outlook for 2024 was lifted to 3.0 percent from 2.2 percent.

The economy is projected to contract more severely next year, by 1.2 percent compared with -0.7 percent estimated previously. Nonetheless, the bank forecast the economy to recover next year with 1.0 percent growth.

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