Sweden’s Riksbank on Tuesday launched a 100 basis point hike to interest rates, taking its main policy rate to 1.75%, as it warned that “inflation is too high.”
In a statement, the central bank said soaring inflation was “undermining households’ purchasing power and making it more difficult for both companies and households to plan their finances.”
The sharp hike comes as the U.S. Federal Reserve begins its two-day monetary policy meeting, with markets broadly expecting a 75 basis point increase as policymakers strive to get soaring prices under control.
The Riksbank said monetary policy will need to be tightened further to bring inflation back to its 2% target, and forecast further rises to interest rates over the next six months.
“The development of inflation going forward is still difficult to assess and the Riksbank will adapt monetary policy as necessary to ensure that inflation is brought back to the target,” it said.
Although global factors such as residual imbalances after the Covid-19 pandemic and soaring energy prices due to Russia’s war in Ukraine have driven prices skyward, the Riksbank executive board said strong economic activity in Sweden has also contributed.
Swedish consumer price inflation rose to 9% annually in August, its highest level since 1991 and exceeding the Riksbank’s previous forecast in June.
“Rising prices and higher interest costs are being felt by households and companies, and many households will have significantly higher living costs,” the Riksbank said.
“However, it would be even more painful for households and the Swedish economy in general if inflation remained at the current high levels.”
The comments echoed the recent line taken by Fed Chairman Jerome Powell, who said the U.S. economy will need to face “some pain” in order to prevent inflation inflicting greater long-term damage.
