Riksbank Governor Erik Thedeen (R) and Deputy Head of Monetary Policy Mattias Erlandsson announced at a press conference in Stockholm on Wednesday that they were forced to raise Sweden’s interest rate to the highest level since 2008 because inflation remained “too high”. Photo by Anders Wiklund/EPA-EFE
April 26 (UPI) — Sweden’s central bank raised interest rates by 50 basis points to 3.5% on Wednesday in an effort to curb “excessive” inflation, warning that another quarter percentage point hike was likely in June or September.
Despite falling energy prices, higher-than-expected inflation in the first months of the year convinced the Executive Board that in order for inflation to fall and stabilize at 2% over a reasonable period of time, said the press release.
“Inflation remains too high,” which, combined with higher core inflation, “affects certain households with tight margins to begin with, but the development is negative for the economy as a whole,” the bank said.
“Low and stable inflation is a necessary condition for good economic development. For confidence in the inflation target, it is important that inflation clearly decreases this year.”
However, the Riksbank stressed that any future rate adjustments depend on what happens with inflation and the economy.
“There is still considerable uncertainty regarding the development of inflation. The new information and how it is evaluated will affect the outlook for the economy and inflation, and will be decisive in determining monetary policy.”
Two of the six members of the executive board, First Deputy Governor Anna Breman and Deputy Governor Martin Floden, opposed the decision to raise the interest rate by 0.5 percentage point, favoring 0.25%, a rate that indicates a high probability. will continue to increase in either June or September or both.
Inflation has been falling — albeit not consistently — since December, when it hit a 30-year high of 12.1 percent, but remained in double digits at 10.6 percent in March. The bank said the 1.4% fall from 12% in February was mainly due to lower energy prices.
The Riksbank said that the krona was not the decisive factor behind the large increase in inflation, but that it “contributed to slightly higher inflation” and that a stronger krona “would be desirable in this situation”.
A weakening currency increases the prices of imported raw materials and goods, increasing consumer price inflation.
The bank predicts that inflation will again reach the 2% target next year.