Swedish central bank hikes rate to 15-year high

STOCKHOLM

Sweden’s central bank announced another hefty rate hike yesterday, taking it to its highest level since 2008 to fight double-digit inflation.

“Monetary policy needs to be tightened to bring down inflation,” the bank said, warning that a further increase was to be expected in the coming months after raising the rate by a half-percentage-point to three percent.

Swedish inflation hit 12.3 percent in December, its highest level in 30 years and six times higher than the bank’s 2.0 percent target.

“Even disregarding energy prices, inflation is high and rising,” the bank said.

While the bank had launched asset purchases in recent years to stimulate the economy, the monetary institution will begin doing the opposite in April, selling government bonds.

Sweden’s economy slowed considerably in the fourth quarter, with gross domestic product unexpectedly shrinking by 0.6 percent.

The krona has also depreciated sharply against other main currencies.

The bank said that for 2023, it expected Sweden to see a recession of 1.1 percent, non-adjusted inflation of 8.6 percent and rising unemployment.

Central banks worldwide have been raising borrowing costs in efforts to tame runaway prices, at the risk of causing recession as the moves slow economic activity.

In April last year, Sweden’s key rate was still at zero percent.

In a country where many mortgages are indexed against the key rate, the sharp increase has had a major impact on households and has raised fears of a housing market crash after a decade of soaring prices.