The central bank hikes the interest rate by 50 basis points to 0.75% and anticipates additional increases this year.
The Riksbank stated on Thursday that it would hike its main policy rate by 50 basis points to 0.75 percent, in line with market forecasts, and hinted that there will be additional increases this year.
When the central bank stated in April that it would purchase SKr37bn ($3.6bn) in bonds in the second half of the year, or half the amount in the first half, it was not clear how quickly the balance sheet would be reduced.
The rate increase, which came in response to a strong acceleration in Swedish inflation—which jumped to 7.2% in the year to May, the steepest increase in 31 years—followed a 25bp increase in April. The goal rate set by the central bank is 2%.
The policy rate “will be hiked further and that it will be close to 2% at the start of next year,” according to the Riksbank board. The purpose was to “counteract the high inflation getting entrenched in price setting and wage formation,” as Swedish inflation was predicted to remain above 7% for the remainder of the year.
In preparation of probable rate increases by the US Federal Reserve and European Central Bank in July, which could put downward pressure on the krona, analysts believe the Riksbank is increasing borrowing rates.
Since the beginning of the year, Sweden’s currency has lost 11.6% versus the US dollar and 3.8% against the euro, adding to inflationary pressure by raising the cost of imports. Following the Thursday Riksbank statement, the krona increased little against the euro to €0.0936.
The Riksbank must make every meeting count because it holds fewer meetings annually than other central banks, according to analysts at ING in a note this week.
“The Riksbank will want to get out in front — not least considering the recent depreciation in the krona,” according to the article. “The ECB is prepared to increase twice before Swedish policymakers meet again in September.”