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ECONOMY

Sweden’s central bank hikes core rate to highest level in 14 years

Sweden's Riksbank central bank announced a further 75 point increase in the core interest rate on Thursday, in what it likely to be the last interest rate decision by outgoing governor Stefan Ingves.

Sweden's central bank hikes core rate to highest level in 14 years
Sweden's Riksbank governor holds a press conference on Thursday announcing the rate rise. Photo: Fredrik Sandberg/TT

While the 75 point hike was expected by the market, the bank signalled that it now expected rates to peak at 2.8 percent next year, up from 2.5 percent in it previous forecast. 

“Inflation is too high and it’s creating problems for many, many households and many, many others,” Ingves said at a press conference after the announcement. 

“Our judgement right now is that the core rate is going to need to be hiked again at the beginning of next year and will end up somewhere around 3 percent. This unusually high inflation that we’ve had demands unusually big increases in the core rate.” 

Thursday’s rate announcement follows the 100-point rise in interest rates announced at the end of September, the biggest single increase the central bank had made in 30 years. 

It means the country’s core interest rate will have risen from zero to 2.5 percent in less than a year.  

“I think that’s too much. The Swedish economy is starting to buckle,” said Annika Winsth, chief economist for the Nordea bank. “It’s a little bit more aggressive than we expected. It’s not certain it will happen, and if it does, it won’t be good for the Swedish economy.”  

“The prognosis indicates that the core interest rate is probably going to be further increased at the start of next year to just under 3 percent,” the bank wrote in a press release. “The Riksbank is going to adapt monetary policy to whatever is required to make sure that inflation returns to the target level within a reasonable period.” 

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ECONOMY

Sweden’s new right-wing govt slashes development aid

Sweden, one of the world's biggest international donors, is planning drastic aid cuts in the coming years, the country's new right-wing government said in its budget bill presented on Tuesday.

Sweden's new right-wing govt slashes development aid

Prime Minister Ulf Kristersson’s government said it planned to reduce the country’s international aid by 7.3 billion kronor ($673 million) in 2023, and by another 2.2 billion kronor in 2024.

That is around a 15-percent reduction from what had been planned by the previous left-wing government and means Sweden will abandon its foreign aid target of 1 percent of gross national income.

International aid for refugees will be capped at a maximum of eight percent of its aid, and will also be reduced.

According to the specialised site Donor Tracker, Sweden was the world’s eighth-biggest international aid donor in terms of absolute value last year, and the third-biggest in proportion to the size of its economy, donating 0.92 percent of its gross national income, behind Luxembourg and Norway.

The new government, which is backed for the first time by the anti-immigration Sweden Democrats, had announced in its government programme last month that it would be cutting foreign aid.

Since 1975, Stockholm has gone further than the UN’s recommendation of donating at least 0.7 percent of its wealth to development aid.

Despite its growth forecast being revised downwards — the economy is expected to shrink by 0.4 percent next year and grow by 2 percent in 2024 — the 2023 budget forecasts a surplus of 0.7 percent of gross domestic product.

It calls for an additional 40 billion kronor in spending, with rising envelopes for crime fighting and the building of new nuclear reactors, as well as a reduction in taxes on petrol and an increase in the defence budget.

The new government is a minority coalition made up of Kristersson’s conservative Moderates, the Christian Democrats and the Liberal party, backed in parliament by their key ally the Sweden Democrats to give them a majority.

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