In its decision, the Riksbank said that global economic activity currently remains favourable, but warned that “there is considerable uncertainty over future developments.” This, it said, is because although international inflationary pressure is still moderate, it is expected to rise going forward.
The central bank said that the Swedish economy is still strong and that inflation remains close to the target of 2 percent, but noted that this was “largely due to rapidly rising energy prices. Thanks to Sweden's strong economic activity, however, inflation is expected to stay close to the target even when the fast-paced “increase in energy prices slows down”.
The interest rate may therefore soon be raised.
“If the economy develops as expected, there will soon be scope to slowly reduce the support from monetary policy. The forecast for the repo rate indicates that it will also be held unchanged at the monetary policy meeting in October, and then raised by 0.25 percentage points, either in December or February.”
Once again, the central bank pointed to the risks associated with keeping interest rates low for too long.
“The low interest rates are exacerbating the risks linked to high and rising household indebtedness, while the fundamental causes of the high indebtedness still remain. Achieving long-term sustainable development in the Swedish economy therefore requires measures within housing policy, taxation policy and, where necessary, macroprudential policy.
The Riksbank took the landmark decision to slash the key interest rate, the repo, below zero in February 2015, hoping that the strategy would boost inflation to raise the price of everyday goods and services which had been stagnant in recent years, and therefore improve the Nordic nation's economic prospects.