Breaking News
Investing Pro 0
Cyber Monday Extended SALE: Up to 60% OFF InvestingPro+ CLAIM OFFER

Sweden lifts interest rates by full percentage point with more to come

Economy Sep 20, 2022 07:01AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: The sign for Sweden's central bank is pictured in Stockholm, Sweden, August 12, 2016. Picture taken August 12, 2016. REUTERS/Violette Goarant/File Photo

By Simon Johnson

STOCKHOLM (Reuters) -Sweden's central bank raised interest rates on Tuesday by a larger-than-expected full percentage point to 1.75% and warned of more to come over the next six months as it sought to get to grips with surging inflation.

Inflation hit 9% - a 30-year high - in August as the effects of soaring energy prices spread through the economy, and has overshot the Riksbank's forecasts.

The rate hike was the biggest since the inflation target was adopted in 1993, equalling the full percentage point hike of November 1992 during Sweden's domestic financial crisis when the main rate hit 500% for a short period.

"When rates go up, obviously, interest costs go up for many households, but the costs of high inflation - persistently high inflation - those are, in fact, even bigger," Governor Stefan Ingves told reporters.

"By raising rates now and by continuing to hike rates we reduce the risk that inflation is going to park itself at a high level."

A majority of analysts in a Reuters poll had forecast a 75 basis point hike on Tuesday, with only two expecting a full percentage point.

The Swedish crown was flat after initially rising on the rate announcement.

There is little the central bank can do about the current level of inflation. But rate-setters do not want surging prices to spill over into higher wage demands, which would make the job of returning to the 2% inflation target much harder in the longer term.

Rate rises will continue despite forecasts Sweden's economy is heading for a sharp downturn - possibly even a recession.

The Riksbank forecast GDP would shrink 0.7% next year.

Rate-setters now see the policy rate peaking at around 2.5% in the second quarter of next year, rather than a 2% peak early next year seen in June.

"We ... believe the policy rate will be higher than that and we don't exclude a peak of 3.5% at the end of 2023," Lars Kristian Feste, head of fixed income at Ohman Group said.

"The reason is that inflation is not going to come down as fast as in the Riksbank's forecast of around 2.0% in 2024."

Markets also see the policy rate peaking around 3.5%.

Sweden's economic downturn creates an immediate challenge for the new government, which is expected to be formed by a four-party, right bloc which won most seats in a national election earlier this month.

Tax cuts are likely on the agenda, although Governor Ingves said fiscal policy would be better focused on structural reform than holding up demand.

Other central banks are also expected to keep tightening monetary policy.

Earlier this month, the European Central Bank raised its key interest rate by 75 basis points, following two such hikes by the U.S. Federal Reserve.

Analysts are betting there will be no let-up in the pace of hikes from the Fed and the ECB, while other central banks, such as the Swiss National Bank, are likely to follow suit with aggressive hikes.

The United States, Britain, Norway, Switzerland and Japan all have monetary policy meetings this week.

Sweden lifts interest rates by full percentage point with more to come
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email