Riksbank Raises Key Rate; Signals 25 Bps Hike Ahead
Sweden’s central bank hiked its benchmark interest rate by half a percentage point on Wednesday in a bid to bring inflation down to the target and also signaled another increase of a quarter-point in June or September.
The executive board of the Riksbank decided to raise the policy rate by 0.5 percentage points to 3.50 percent.
The central bank started tightening its policy in April 2022, when the policy rate was zero percent.
Regarding the future path, the board said the policy rate will probably be raised further by 25 basis points in June or September.
With the policy actions, inflation is forecast to fall back this year and to stabilize close to 2 percent in 2024.
Policymakers observed that the monetary policy has a tightening effect on the economy. The board assessed that there will be scope to adjust the policy rate in smaller steps after the April meeting.
Inflation is still far too high and far from the target. Disregarding energy prices, inflation has been much stronger than anticipated during the first months of the year.
Although krona has not been a key factor behind higher inflation, it has contributed to somewhat higher inflation. A stronger currency would be desirable in the current situation, the bank said.
The central bank upgraded its inflation outlook for 2023 to 8.9 percent from 8.6 percent. Similarly, the projection for 2024 was lifted to 4.0 percent from 3.6 percent, while that for 2025 was lowered to 2.3 percent from 2.4 percent.
The economy is forecast to shrink 0.7 percent in 2023, which was revised down from the previous projection of 1.1 percent. Gross domestic product is expected to gain 0.2 percent next year, down from the previous outlook of 0.9 percent. For 2025, economic growth outlook was lowered to 1.8 percent from 1.9 percent.
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