Sweden’s central bank raises interest rate sharply to 1.75%

Sweden’s Riksbank has raised its interest rate by a full percentage point in its most aggressive tightening in almost three decades, kicking off a global round of monetary-policy action to bring prices under control, Report informs referring to Reuters.

The Swedish central bank lifted its policy rate to 1.75%, defying the predictions of most economists for a smaller move as officials escalated their response to consumer-price increases that have exceeded their forecasts for 11 straight months.

It was the biggest increase since the Stockholm-based bank set up its current policy regime, with a 2% inflation target, in the 1990s.

“The risk is still large that inflation becomes entrenched, and it is extremely important that monetary policy acts to ensure that inflation falls back and stabilizes,” officials said in a statement. “Monetary policy now needs to act more than was anticipated in June.”

By this time next year, the rate is likely to have reached 2.5%, which implies another three quarters of a percentage point in tightening, according to their new forecasts.

“While the Riksbank’s rate hike was bigger than expected, the road ahead is if anything less aggressive,” Claes Mahlen, chief strategist for Handelsbanken, said in a report anticipating a half-point increase in November and a quarter point in February.

In August, Swedish inflation reached another three-decade high at 9%, highlighting how policy makers had underestimated price increases after what was long one of the most stimulus-friendly approaches in the rich world.