Highest since 2008: Swedish key interest rate hits 3.5 percent
Sweden's central bank, the Riksbank, hiked the key interest rate by 0.5 percentage points to 3.5 percent in a so-called "double hike", while predicting a further 25 point hike in June or September.
After Wednesday's rate hike, Sweden's key interest rate is now at the highest level since October 2008.
Two members of the Riksbank's board - Anna Breman and Martin Flodén - were against the double hike, instead lobbying for a smaller 0.25 percentage point increase.
The 0.5 percentage point increase was however in line with expectations, motivated by unusually high inflation.
Further hike in June or September
Rates could go up further at the bank's next meeting in June.
"The prognosis shows that the key interest rate will be raised by a further 0.25 percentage points in June or September," the bank wrote.
'Surprising'
Analysts are surprised by the bank's prognosis, which Danske Bank economist Therese Persson described as "very mild".
"Our prognosis expected the Riksbank to raise rates by 50 points in June," she told TT newswire.
Persson believed the milder prognosis could be due to salary negotiations, with Swedish unions and employers recently agreeing to a two-year deal.
"That buys some time for the Riksbank, but if you look at inflation, it's come out far higher than the bank's predictions, so I don't think motivates this milder messaging at all."
Torbjörn Isaksson, head analyst at Nordea, was also surprised by the news.
"They've scheduled a 25 point raise in June. We thought they'd increase it by more. They've put interest rate drops into the interest rate predictions, that was also milder than expected."
Key interest rates will hit a peak of 3.75 percent, according to current Riksbank predictions, although Isaksson would not rule out the possibility of the bank taking harsher measures in the near future if needed.
"They let the data lead, and there will be two new inflation figures between now and the next meeting. And the ECB and the Fed will also have new interest rate policies," he said. "A lot can happen."
According to the Riksbank's predictions, key interest rates will reach an average of 3.7 percent in 2024, dropping to 3.6 percent at the beginning of 2025 and 3.4 percent in the second quarter.
GDP prognosis improved
The Riksbank also slightly altered its prognosis for Swedish GDP this year, with Sweden's economy expected to shrink by 0.7 percent compared to previous predictions of 1.1 percent.
Recovery next year is, however, expected to be slower than expected according to the bank's predictions, with growth hitting just 0.2 percent in 2024 compared to a previous prediction of 0.9 percent.
Unemployment is expected to drop somewhat this year, remaining at 8.4 percent in 2024 and 2025.
The Swedish krona dropped immediately after the announcement by around 10 öre to the euro.
A lower krona could in turn fuel inflation, as it increases the price of imported goods.
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After Wednesday's rate hike, Sweden's key interest rate is now at the highest level since October 2008.
Two members of the Riksbank's board - Anna Breman and Martin Flodén - were against the double hike, instead lobbying for a smaller 0.25 percentage point increase.
The 0.5 percentage point increase was however in line with expectations, motivated by unusually high inflation.
Further hike in June or September
Rates could go up further at the bank's next meeting in June.
"The prognosis shows that the key interest rate will be raised by a further 0.25 percentage points in June or September," the bank wrote.
'Surprising'
Analysts are surprised by the bank's prognosis, which Danske Bank economist Therese Persson described as "very mild".
"Our prognosis expected the Riksbank to raise rates by 50 points in June," she told TT newswire.
Persson believed the milder prognosis could be due to salary negotiations, with Swedish unions and employers recently agreeing to a two-year deal.
"That buys some time for the Riksbank, but if you look at inflation, it's come out far higher than the bank's predictions, so I don't think motivates this milder messaging at all."
Torbjörn Isaksson, head analyst at Nordea, was also surprised by the news.
"They've scheduled a 25 point raise in June. We thought they'd increase it by more. They've put interest rate drops into the interest rate predictions, that was also milder than expected."
Key interest rates will hit a peak of 3.75 percent, according to current Riksbank predictions, although Isaksson would not rule out the possibility of the bank taking harsher measures in the near future if needed.
"They let the data lead, and there will be two new inflation figures between now and the next meeting. And the ECB and the Fed will also have new interest rate policies," he said. "A lot can happen."
According to the Riksbank's predictions, key interest rates will reach an average of 3.7 percent in 2024, dropping to 3.6 percent at the beginning of 2025 and 3.4 percent in the second quarter.
GDP prognosis improved
The Riksbank also slightly altered its prognosis for Swedish GDP this year, with Sweden's economy expected to shrink by 0.7 percent compared to previous predictions of 1.1 percent.
Recovery next year is, however, expected to be slower than expected according to the bank's predictions, with growth hitting just 0.2 percent in 2024 compared to a previous prediction of 0.9 percent.
Unemployment is expected to drop somewhat this year, remaining at 8.4 percent in 2024 and 2025.
The Swedish krona dropped immediately after the announcement by around 10 öre to the euro.
A lower krona could in turn fuel inflation, as it increases the price of imported goods.
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