The bank has decided to raise its key interest rate, the repo rate, by one percentage point to 1.75 percent, wrong-footing analysts who had expected the bank to hike rates by just 75 points to 1.5 percent
At a press conference announcing the decision, Stefan Ingves, the bank’s governor, apologised for not acting sooner to head off inflation.
“There is nothing to do but apologise that it took a little time before we understood what was happening to the Swedish economy,” he said. “We’ve been wrong on our predictions on a number of occasions, but when inflation is as high as it is right now, it’s obvious what we are forced to do.”
Sweden’s inflation rate hit 9 percent in August, the highest level since 1991, indicating that the rate hikes imposed earlier in the year have not yet started to pulls price rises down.
In a press release announcing its decision, the bank warned that high inflation “hollows out households’ buying power and makes it harder for both companies and households to plan their finances”.
Ingves said at the press conference that the pain consumers will face if inflationary expectations are allowed to take hold exceeds the pain that will be caused by a greater-than-expected rate hike.
“This is about weighting up today against tomorrow,” he said.
As well as increasing the rate itself, the bank announced that it would increase it in the future more than it had previously forecast, with the rate now projected to hit 2.5 percent in 2023, compared to 1.9 percent in its earlier prognosis, and 2.5 in 2024, compared to 2.0 percent earlier.
“The prognosis indicates that the rate is going to raised again in the coming six months,” the bank wrote. “There is great uncertainty over the outlook for inflation, and the Riksbank is going to adjust monetary policy in whatever way is needed to ensure that inflation returns to the target.”
Robert Bergqvist, senior economist at Sweden’s SEB Bank, wrote after the announcement that the hike was “not a happy step but a completely necessary one”.
He said it showed a united central bank “throwing all its weight behind an aggressive exit policy”, which he predicted would start to bring inflation under control in 2023, allowing rate cuts as soon as 2024.
🇸🇪 Inte roligt men helt nödvändigt steg från Riksbanken! Styrräntan idag: 1.75% (+100pkt) – nästa höjning 24 nov. Enig Riksbank – lägger tyngd bakom aggressiv exitpolitik. Under 2023 kan inflationen komma ned och öppna för räntesänkningar 2024. pic.twitter.com/Hk5ic4Wh3F
— Robert Bergqvist (@BergqvistRobert) September 20, 2022
But the decision was criticised by Torbjörn Hållö, chief economist at the Swedish Trade Union Confederation, who on Twitter called the decision “bizarre”, and “beyond all sense and balance”.
He argued that today’s high inflation rate was driven by power and fuel shortages, meaning increasing interest rates would have no impact.
Bisarrt. Helt bortom all sans och balans på Brunkebergstorg.
Svensk inflation drivs av en energikris i Europa, som drivs av rysk gas och nerlagd kärnkraft.
Stängda kärnkraftverk återstartats inte med chockhöjd svensk ränta. https://t.co/SinJQ5nUDJ
— torbjörn hållö (@torbjornhallo) September 20, 2022