The Riksbank raises interest rates to 4%, in line with expectations

Sweden’s central bank raised interest rates for the eighth consecutive time on Thursday, bringing its key interest rate to 4%, as the country continues to battle high inflation.

The quarter-point increase is in line with the expectations of analysts polled by Reuters.

Sweden’s headline inflation rate, which excludes energy costs, slowed more than expected last month, to 7.2% for August, according to European Central Bank data. Sweden statistics. This represents a decline from the annual rate of 8% in July.

The Swedish central bank said in a statement that the Swedish economy was “moving in the right direction,” but highlighted that inflationary pressures “remain very high.”

“Service prices continue to rise at a rapid pace, which, coupled with an unjustifiably weak krona, maintains inflation and increases the risk that inflation will not continue to fall and stabilize around the target quickly enough,” the bank said.

The krone gained on the interest rate decision, rising to 11.1720 against the US dollar in the minutes after the announcement, according to LSEG data. This was higher than 11.1588 before the announcement.

The Scandinavian country suffers from a weak currency, as the krona recorded record levels against the euro during the past two months. At the same time, the housing market felt the full impact of unexpected and aggressive interest rate increases.

The Riksbank has raised interest rates at every meeting, starting in May 2022.

Stefan Ingves, the former central bank governor, warned in January that Sweden was facing a “day of reckoning,” with house prices falling and the economy generally faltering.

“I have repeatedly said that the level of debt in the household sector is very high, there will be a day of reckoning, and eventually interest rates will rise, and now interest rates have risen,” Ingves said. . .

Norway’s central bank also chose to raise interest rates on Thursday, adding 25 basis points to 4.25% to its key interest rate. Interest rates are likely to be hiked in December, according to the bank governor.

“Whether additional tightening is needed depends on economic developments. It is likely that there will be an additional hike in interest rates, most likely in December,” Ida Welden-Basch said in a report. press release.

The interest rate increases in the two Scandinavian countries came after the Federal Reserve paused its rate-hiking cycle on Wednesday, but indicated it would raise interest rates again this year.