October 1, 2022

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Sweden’s central bank raises interest rates by 100 basis points

Sweden's central bank raises interest rates by 100 basis points

Sweden’s Riksbank launched a 100 basis point interest rate hike on Tuesday as it looks to rein in inflation.

Mikael Sjoberg/Bloomberg via Getty Images

Sweden’s Riksbank on Tuesday launched a 100 basis point rate hike, raising the key rate to 1.75%, as it warned that “inflation is too high”.

The central bank said in a statement that high inflation “undermines the purchasing power of households and makes financial planning for companies and households more difficult.”

Sharp rise comes as US Federal Reserve The two-day monetary policy meeting begins, with markets widely anticipating a 75 basis point increase as policy makers seek to control rising prices.

The Riksbank said monetary policy needs to be tightened further to bring inflation back to its 2% target, and forecast further rate hikes over the next six months.

“It remains difficult to assess the future development of inflation and Riksbank will adjust monetary policy as necessary to ensure inflation returns to target,” she said.

Although global factors such as imbalances left after the Covid-19 pandemic and higher energy prices due to the Russian war in Ukraine pushed prices higher, Riksbank’s executive board said strong economic activity in Sweden also contributed.

Swedish consumer price inflation rose to 9% annually in August, the highest level since 1991 and exceeding Riksbank’s previous forecast in June.

“Families and businesses are feeling higher prices and higher interest costs, and many families will have a much higher cost of living,” Riksbank said.

“However, it will be even more painful for households and the Swedish economy in general if inflation remains at the current high levels.”

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The comments echoed the recent line of Federal Reserve Chair Jerome Powell, who said the US economy would need to face “some pain” in order to prevent inflation from doing more damage in the long run.

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