Sweden’s Riksbank launched a 100 basis point hike to rates of interest on Tuesday because it looks to rein in inflation.
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Sweden’s Riksbank on Tuesday launched a 100 basis point hike to rates of interest, taking its important policy rate to 1.75%, because it warned that “inflation is simply too high.”
In an announcement, the central bank said soaring inflation was “undermining households’ purchasing power and making it tougher for each corporations and households to plan their funds.”
The sharp hike comes because 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 have to be tightened further to bring inflation back to its 2% goal, and forecast further rises to rates of interest over the following six months.
“The event of inflation going forward continues to be difficult to evaluate and the Riksbank will adapt monetary policy as mandatory to be sure that inflation is brought back to the goal,” it said.
Although global aspects reminiscent of residual imbalances after the Covid-19 pandemic and soaring energy prices because of 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 better interest costs are being felt by households and corporations, and lots of households can have significantly higher living costs,” the Riksbank said.
“Nevertheless, it will be much more painful for households and the Swedish economy generally if inflation remained at the present high levels.”
The comments echoed the recent line taken by Fed Chairman Jerome Powell, who said the U.S. economy might want to face “some pain” to be able to prevent inflation inflicting greater long-term damage.