Swedish central bank delivers half-point rate hike

STOCKHOLM: Sweden’s central bank delivered a half percentage point hike yesterday, taking the benchmark rate to 0.75% from 0.25%, and flagged further sharp tightening ahead as it seeks to get to grips with inflation running at a 30-year high.

The rate hike, while widely expected by markets, was the Riksbank’s biggest in more than two decades.

Price rises from fuel to food have pushed up the pace of inflation in the wake of the pandemic and Russia’s invasion of Ukraine, forcing the Riksbank to tighten policy much earlier and more aggressively than ratesetters had expected.

“The risk of the high inflation becoming entrenched in price setting and wage formation has ... increased,” the central bank said in a statement.

“The executive board’s forecast is that the policy rate will be raised further and that it will be close to 2% at the start of next year.”

As late as February this year, the Riksbank had forecast no change in the benchmark rate until 2024.

Analyst in a Reuters poll had forecast the half-point hike following a surge in headline inflation to 7.2% in May, with a further 50 basis point (bps) hike seen in September — the next rate-setting meeting.

Markets still see the Riksbank needing to pick up the pace of tightening in the short term and to keep hiking for longer.

The central bank targets 2% headline inflation.

The Riksbank is not alone in setting aside worries over growth to focus on inflation. The US Federal Reserve raised rates by 0.75 percentage points at its most recent meeting and Norway by 50 bps points.

The European Central Bank is set to raise interest rates for the first time in a decade next month, though the hike is expected to be by a quarter-point.