SWEDEN’S central bank today raised its key interest rate to its highest level in nearly 15 years and warned another hike was likely to combat stubbornly high inflation.

Riksbank increased the rate by 0.25 percentage points to 3.75%, its sixth hike in a row.

The bank said in a statement that its “policy rate increases are having an effect, but for inflation to return to the target of 2% within a reasonable period of time, monetary policy needs to be tightened further”.

Consumer prices in Sweden rose by 9.7% in May year-on-year, down from 10.5% in April, the first time inflation came in under 10% in over six months.

Inflation peaked last December at 12.3% – a more than 30-year high – then slowed slightly in January to 11.7%, but unexpectedly spiked back to 12% in February.

Adjusted for fixed interest rates (CPIF) – the figure used by the Riksbank to guide monetary policy – inflation was 6.7% in May, compared with 7.6% in April.

While this decline was larger than the Riksbank had forecast, the bank noted that this was “largely due to the surprisingly large fall in energy prices”.

“The forecast is for the policy rate to be increased at least one more time this year,” the Riksbank said.

For 2023 as a whole, the central bank said it expects the Swedish economy to contract 0.5%, and is forecasting unadjusted inflation of 8.9%. – AFP, June 29, 2023.