Swedish Inflation

Riksbank Raises Policy Rate – Signals Further Hikes

As expected, the Riksbank is raising its policy rate by 0.25 percentage points to 2.00 percent. The decision is driven by a stronger economic climate, rising inflation in the wake of the war in the Middle East, and a weaker krona.

"If the outlook for inflation and the economy holds, it is likely that the policy rate will be raised further over the coming year," the central bank writes in a press release.

At the same time, the Riksbank points to several factors of uncertainty. The war could be prolonged, the economy might grow faster than anticipated, and global demand could decline due to geopolitical uncertainty and concerns surrounding investments in AI.

The Riksbank is not providing a new forecast this time, instead continuing to rely on the interest rate path from September, which suggests two further hikes next year, bringing the policy rate to 2.50 percent.

Today’s increase is the first in over three years, and also the first change to the interest rate in more than a year. 

"If We Don't Raise Rates Preemptively, We'll Be Too Late"

The primary reason for the Riksbank raising the policy rate to 2.00 percent is, in fact, positive: the Swedish economy has "very strong momentum." This was stated by Riksbank Governor Erik Thedéen at the press conference following the interest rate announcement.

Meanwhile, a "cocktail" of factors—including supply disruptions and higher oil prices resulting from the war in the Middle East—is expected to drive up inflation. When asked why the Riksbank is raising interest rates now, even though inflation remains relatively low, Thedéen explains that this is how interest rate hikes are intended to work:

“If you don’t act as a preventive measure, you’re already too late.”

He declines to say when the next hike will occur, pointing instead to the September forecast, which indicates two further increases over the coming year.