Swedish c.bank will raise the policy rate to 2.5% this week, survey shows
STOCKHOLM, Nov 21 (Reuters) – Sweden’s central bank has been seen raising its key interest rate by three-quarters of a percentage point this week to get a grip on rising inflation, a Reuters poll of analysts showed on Monday.
The Riksbank has tightened policy three times already this year, most recently in September when it was raised by 1 percentage point to 1.75% – the biggest step in 30 years.
But core inflation continues to pick up, with thirteen of sixteen analysts in the survey forecasting a rise to 2.5% when the central bank announces its policy decision on November 24.
“After high inflation in October, most indications point to an interest rate increase of at least 75 bps,” said banking group SEB. “However, a larger 100bps hike cannot be ruled out.”
At its last meeting in September, the Riksbank said it would need to continue to tighten policy, outlining a 50 basis point hike in November and a further measure early next year.
The central bank forecast interest rates would reach a peak of 2.5%.
Analysts in the survey saw prices peaking slightly higher. Markets expect rates to rise to around 3.25% in autumn 2023.
Households are already struggling with a cost-of-living crisis and the economy is expected to slow sharply – banking group Nordea expects a 2% drop in GDP and the central bank a 0.7% drop in 2023.
Home prices have fallen about 10% since their peak last spring and higher mortgage costs will add to the pain.
But price setters argue that by acting decisively now, they won’t have to take even more aggressive action later.
Headline inflation eased slightly in October, falling to 9.3% from 9.7% the previous month. But the decline was mainly due to lower electricity prices. Core inflation rose to 7.9% from 7.4%, worrying rate-setters.
In addition, the European Central Bank (ECB) doubled its deposit rate to 1.5% in late October and promised further tightening in the coming months.
Riksbank Governor Stefan Ingves – who is leaving at the end of the year – has said that Sweden’s key interest rate must be a “respectable distance” higher than the ECB’s to strengthen the Swedish krona and prevent a jump in imported inflation.
The ECB has two more policy meetings ahead of the Riksbank’s next interest rate decision in February. Markets see the ECB’s deposit rate rising to 2% in December, but investors also see a reasonable likelihood of a bigger move to 2.25%.
Reporting by Simon Johnson; editing by Niklas Pollard
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