Swedish interest rate hike “likely in April”

Inflation in Sweden is creeping up and could be paving the way for a rise in interest rates within two weeks, say analysts.

And that could mean that increasing interest rate costs swallow part of the government’s planned pre-election expenditure in areas such as child benefit.

The Riksbank has already raised the key interest rate twice this year, taking it from a record low of 1.5% to 2.0%. Most analysts have been anticipating a pause, with a third increase in June. But recent statistics have strongly increased the chances of an interest rate rise in April.

The prices of small houses, a factor which worries the Riksbank, are continuing to rise despite the previous rate hikes. Employment is increasing and the consumer price index is climbing faster.

“The labour market is better than the Riksbank expected. There’s no panic but there is slightly higher inflationary pressure and, looking forward a year, that will increase further,” said Peter Kaplan, a strategist at Handelsbanken.

“That would mean a rise in April, even if the market doesn’t think so in the current situation.”

The deputy governor of the Riksbank, Irma Rosenberg, will give a speech on April 19th which could be used to indicate a possible rise – in line with the bank’s policy of clearly signalling an increase in advance.

The bank’s previous rate hikes this year have been criticised by the Social Democrats.

Both party secretary Marita Ulvskog and the head of the union organisation LO, Wanja Lundby-Wedin, said the rises were unnecessary, while prime minister Göran Persson has said that he cannot see any inflationary pressure in the economy.

TT/The Local


Swedish economy to grind to a halt as interest rates kick in

Sweden faces an economic slump next year that will see economic growth grind to a complete stop, Sweden's official government economics forecaster, has warned.

Swedish economy to grind to a halt as interest rates kick in

Sweden’s National Institute of Economic Research, which is tasked with tracking the business cycle for the Swedish government, warned in its quarterly forecast on Wednesday that greater than expected energy prices, interest rate rises, and stubborn inflation rates, Sweden was facing a significant downturn. 

The institute has shaved 1.6 percentage points off its forecast for growth in 2023, leaving the economy at a standstill, contracting -0.1 percent over the year. 

The institute now expects unemployment of 7.7 percent in 2023, up from a forecast of 7.5 percent given when in its last forecast in June.

“We can see that households are already starting to reign in their consumption,” said Ylva Hedén Westerdahl, the institute’s head of forecasting, saying this was happening “a little earlier than we had thought”. 

“We thought this would have happened when electricity bills went up, and interest rates went up a little more,” she continued. 

The bank expects household consumption to contract in 2023, something that she said was “quite unusual” and had not happened since Sweden’s 1990s economic crisis, apart from in the immediate aftermath of the Covid-19 pandemic. 

This was partly down to a five percent reduction in real salaries in Sweden in 2022, taking into account inflation, which the institute expects to be followed by a further two percent fall in real salaries in 2023. 

If the incoming Moderate-led government goes ahead with plans to reimburse consumers for high power prices, however, this would counterbalance the impact of inflation, leaving Swedish households’ purchasing power unchanged. 

The institute said it expected inflation to average 7.7 percent this year and 4.6 percent in 2023, both higher than it had forecast earlier.

Sweden’s Riksbank central bank this month hike its key interest rate by a full percentage point, after inflation hit 9 percent in August, the biggest single hike since the 1990s.