Sweden's central bank launches 100 basis point rate hike

Sweden’s central bank launches 100 basis point rate hike

Sweden’s Riksbank launched a 100 basis point hike in interest rates on Tuesday as it seeks to rein in inflation.

Mikael Sjoberg/Bloomberg via Getty Images

Sweden’s Riksbank on Tuesday launched a 100 basis point hike in interest rates, taking its main policy rate to 1.75%, as it warned “inflation is too high.”

In a statement, the central bank said runaway inflation was “undermining the purchasing power of households and making it difficult for both businesses and households to plan their finances.”

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The sharp rise comes as the US Federal Reserve begins its two-day monetary policy meeting, with markets broadly expecting a 75 basis point rise as policymakers scramble to rein in rising prices. .

The Riksbank said monetary policy will need to be tightened further for inflation to return to its 2% target and forecast further interest rate hikes over the next six months.

“Future inflation developments are still difficult to assess and the Riksbank will adjust monetary policy as necessary to ensure inflation returns to target,” it said.

Although global factors such as residual imbalances after the covid-19 pandemic and rising energy prices due to Russia’s war in Ukraine have pushed prices up, the Riksbank’s executive board said strong economic activity in Sweden also contributed.

Swedish consumer price inflation rose to 9% annually in August, its highest level since 1991, and beat the Riksbank’s previous forecast in June.

“Households and businesses are feeling rising prices and higher interest costs, and many households will have significantly higher costs of living,” the Riksbank said.

“However, it would be even more painful for households and the Swedish economy in general if inflation were to remain at current high levels.”

The comments echoed the recent line taken by Fed Chairman Jerome Powell, who said the US economy will need to deal with “some pain” to prevent inflation from inflicting further long-term damage.

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