Sweden’s Riksbank raises interest rates by 100 basis points, claiming that inflation is too high.
The Riksbank of Sweden raised interest rates by 100 basis points on Tuesday, bringing its benchmark rate to 1.75 percent, announcing that “inflation is too high.”
Rising inflation is “undermining households’ purchasing power and making it more difficult for both enterprises and households to arrange their finances,” the central bank stated in a statement.
The sudden increase occurs as the U.S. Federal Reserve starts its two-day monetary policy meeting; markets had been anticipating an increase of 75 basis points as policymakers work to rein in surging prices.
The Riksbank predicted additional increases in interest rates during the upcoming six months, stating that tightening monetary policy will be necessary to restore inflation back to its target of 2%.
The Riksbank would adjust monetary policy as necessary to ensure that inflation is brought back to the objective, it added. “The evolution of inflation coming forward is still difficult to assess,” it said.
The Riksbank executive board said that although global reasons including unresolved imbalances following the Covid-19 outbreak and skyrocketing energy costs as a result of Russia’s conflict in Ukraine have driven prices sky high, strong economic activity in Sweden has also played a role.
The rate of consumer price inflation in Sweden increased to 9% yearly in August, beating the Riksbank’s previous projection from June and reaching its highest level since 1991.
The Riksbank stated that many households will experience significantly greater living expenses as a result of rising prices and increasing interest rates.
However, if inflation stays at its current high levels, it will be significantly more costly for households and the Swedish economy overall.
The remarks echoed a previous stance made by Fed Chairman Jerome Powell, who stated that “some pain” will need to be endured by the American economy in order to stop inflation from causing more long-term harm.