Sweden hikes key rate again as inflation persists

Sweden’s central bank on Thursday raised its key interest rate to its highest level in nearly 15 year and warned another hike was likely to combat stubbornly high inflation.

Riksbank increased the rate by 0.25 percentage points to 3.75 percent, its sixth hike in a row.

The bank said in a statement that its “policy rate increases are having an effect, but for inflation to return to the target of 2 percent within a reasonable period of time, monetary policy needs to be tightened further.”

Consumer prices in Sweden rose by 9.7 percent in May year-on-year, down from 10.5 percent in April, the first time inflation came in under 10 percent in over six months.

Inflation peaked in December at 12.3 percent — a more than 30-year high — then slowed slightly in January to 11.7 percent, but unexpectedly spiked back to 12 percent in February.

Sweden’s krona has also depreciated greatly against other main currencies over the past year, hitting historic lows against the euro.

“The weak krona is also contributing to keeping inflation up, and there is a risk that the pass-through of the krona to price increases is larger in the current situation of high inflation,” the Riksbank said.

Adjusted for fixed interest rates (CPIF) — the figure used by the Riksbank to guide monetary policy — inflation was 6.7 percent in May, compared to 7.6 percent in April.

While this decline was larger than the Riksbank had forecast, the central bank noted that this was “largely due to the surprisingly large fall in energy prices.”

“The forecast is for the policy rate to be increased at least one more time this year,” the Riksbank said.

For 2023 as a whole, the central bank said it expects the Swedish economy to contract 0.5 percent, and is forecasting unadjusted inflation of 8.9 percent.