Swedish policymakers signal further borrowing-cost increases if the outlook holds
The Riksbank raised its key interest rate to 2% from 1.75% on Wednesday, Nov. 4, marking the Swedish central bank’s first increase in more than three years. It was also the Riksbank’s first rate increase since the war between the United States and Iran began.
Investors had expected the move after Swedish policymakers had flagged the possibility of an increase at their previous gathering. The decision matched that expectation while extending the central bank’s guidance toward additional tightening.
The Riksbank’s action came as a growing number of central banks responded to a jump in energy prices since the war began. The Wall Street Journal reported that the Federal Reserve, the European Central Bank and the Bank of Japan had each raised their key rates at least once. The Bank of England was expected to make its first move Thursday.
Swedish policymakers said their first rate rise was unlikely to be their last. “If the inflation and economic outlook holds, it is likely that the policy rate will be raised further in the coming year,” they said.
Oxford Economics expects two further rate rises to 2.5% by March of next year, according to a note to clients. The projection came as policymakers continued to emphasize the inflation and economic outlook.
Sweden entered the decision with inflation that remained low by international standards. The country was less reliant on imported fossil fuels than most of Europe, while taxes on transport and food had been lowered in response to the war.
The Swedish economy had also shown unexpected resilience. The Wall Street Journal identified increased consumer spending, business investment and exports as reasons for that strength.
Against that backdrop, the Riksbank expects the inflation rate to rise above its 2% target next year. The report said a longer war and higher energy prices would make an inflation pickup more likely, keeping the possibility of further rate increases open.