Sweden hikes interest rate as inflation 'still too high'

STOCKHOLM: Sweden’s central bank raised its key rate to a 15-year high on Thursday 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 four percent in a busy week for central banks worldwide.

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

The US Federal Reserve decided on Wednesday 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,” it said.

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 added.

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

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

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