Bank raises rates again

Sweden's central bank, the Riksbank, has raised interest rates by 0.25 percentage points to 4.0 percent.

“It is also probable that the interest rate will need to be raised slightly further in the future. During the first half of 2008 the repo rate is expected to be around 4.25 per cent,” the bank wrote in a statement on Tuesday morning.

The bank said its assessment of the need for future rate rises was “largely the same” as when it published its prediction of the interest rate path in June.

The rise in rates would contribute to keeping inflation in line with Sweden’s 2 percent target, the Riksbank said.

The Swedish economy is strong, with a good pace of growth and rising employment, the bank said. Lending and house prices have increased rapidly. While underlying inflation is low, cost pressures are increasing due to a slowdown in productivity growth.

High wage rises due to higher-than-expected central wage agreements and a tighter labour market were expected to add to pressure, the bank said.

Signs of a slowdown in growth in the US and the eurozone were noted by the bank, but it said that this was balanced by relatively strong growth in other parts of the world. The US slowdown and the unease on the financial markets would slow down growth in Sweden somewhat, but would not be sufficient to check increased cost pressures, the bank said.