Sweden hikes interest rate as inflation ‘still too high’

Riksbank expects the Swedish economy to shrink by 0.8% this year, with a smaller 0.1% contraction next year. – EPA pic, September 21, 2023.

SWEDEN’S central bank raised its key rate to a 15-year high today and warned that further hikes may be needed as “inflation pressures are still too high”.

Riksbank increased its policy rate by 0.25 percentage points to 4% in a busy week for central banks worldwide.

Norway’s central bank also announced a rate hike today while Swiss policymakers left theirs unchanged. The Bank of England is due to announce later today whether it will hike or pause its monetary tightening cycle.

The US Federal Reserve decided yesterday to pause its own rate-hike campaign but warned that more increases may be needed this year.

Central banks have raised borrowing costs in efforts to tame consumer prices that were sent through the roof following Russia’s invasion of Ukraine last year.

“The substantial and rapid interest rate hikes by central banks since the beginning of last year have contributed to reducing global inflation and dampening economic activity,” Riksbank said in a statement.

“Many central banks have now begun to adjust their monetary policy in more gradual steps, but have at the same time signalled that rate cuts lie far in the future.”

The bank said inflation is also falling in Sweden, with the rate of increase in energy and food prices having slowed “significantly”.

“But inflation pressures are still too high,” it said.

“A high rate of inflation is problematic for the economy as a whole and is being felt by households with small margins in particular.”

Swedish inflation peaked at 12.3% in December but has slowed since then, reaching 7.5% in August.

The central bank expects the Swedish economy to shrink by 0.8% this year, with a smaller 0.1% contraction next year. The Swedish krona has fallen against the euro and dollar, making imports more expensive.

“To ensure that inflation continues downwards and stabilises around the target within a reasonable period of time, monetary policy needs to be tightened further,” the bank said, adding that the rate “could be raised further”. – AFP, September 21, 2023.

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