Sweden’s Riksbank steps up pace of interest rate rises
Sweden’s central bank has joined the growing line of monetary authorities to have raised interest rates by a more aggressive half a percentage point in response to rising inflation.
The Riksbank, which said “price increases are spreading through the economy,” announced Thursday it will raise its key policy rate by 50 basis points to 0.75 percent, in line with market expectations. The bank signaled more increases this year.
The central bank said it would shrink its balance sheet faster than initially announced in April, when it said it would buy SKr 37 billion ($3.6 billion) worth of bonds in the second half of the year, half of the year’s worth. level of the first six months.
The rate hike followed a 25bp gain in April and responded to a sharp acceleration in Swedish inflation, which rose to 7.2 percent in the year to May, the fastest rise in 31 years. The bank’s target percentage is 2 percent.
The board of the Riksbank predicted that “the key rate will be raised further and will be close to 2 percent early next year”. It said Swedish inflation was expected to remain above 7 percent for the rest of the year and was intended to “counteract the high inflation that is becoming entrenched in price-setting and wage-setting”.
Analysts believe the Riksbank is raising borrowing costs in anticipation of likely rate hikes by the European Central Bank and the US Federal Reserve in July, which could put downward pressure on the krona.
The Swedish currency has fallen 11.6 percent against the US dollar and 3.8 percent against the euro since the start of the year, increasing inflationary pressures by raising import prices. Following the Riksbank’s announcement on Thursday, the krone rose slightly against the euro to €0.0936.
“The Riksbank holds fewer meetings each year than other central banks, which means they each have to count,” analysts at ING said in a note this week.
“The ECB is about to raise twice before Swedish policymakers meet again in September, and the Riksbank will want to lead the way – not least given the recent depreciation of the krone.”