Sweden’s CB lifts interest rates
STOCKHOLM: Sweden’s central bank raised interest rates on Tuesday by a larger-thanexpected full percentage point to 1.75 per cent and warned of more to come over the next six months as it sought to get to grips with surging inflation.
Inflation hit 9 per cent - a 30-year high - in August as the effects of soaring energy prices spread through the economy, and has overshot the Riksbank’s forecasts.
The rate hike was the biggest since the inflation target was adopted in 1993, equalling the full percentage point hike of November 1992 during Sweden’s domestic financial crisis when the main rate hit 500 per cent for a short period.
“When rates go up, obviously, interest costs go up for many households, but the costs of high inflation - persistently high inflation - those are, in fact, even bigger,” Governor Stefan Ingves told reporters.
“By raising rates now and by continuing to hike rates we reduce the risk that inflation is going to park itself at a high level.”
A majority of analysts in a Reuters poll had forecast a 75 basis point hike on Tuesday, with only two expecting a full percentage point.
The Swedish crown was flat ater initially rising on the rate announcement. There is litle the central bank can do about the current level of inflation. But rate-seters do not want surging prices to spill over into higher wage demands, which would make the job of returning to the 2 per cent inflation target much harder in the longer term.
Rate rises will continue despite forecasts Sweden’s economy is heading for a sharp downturn - possibly even a recession.
The Riksbank forecast GDP would shrink 0.7 per cent next year.
Rate-seters now see the policy rate peaking at around 2.5 per cent in the second quarter of next year, rather than a 2 per cent peak early next year seen in June.