Sweden surprises with a historic rate hike of 100 basis points to prevent inflation from becoming entrenched

The Riksbank has given the surprise. The oldest central bank in the world, founded in 1668, has announced a rate hike of 100 basis points, a historic decision that aims to curb inflation: “Inflation is too high. It is undermining the purchasing power of households and making it difficult for both businesses and households to plan their finances. Monetary policy now needs to be tightened further to bring inflation back on target,” from the Swedish bank, .

Therefore, the Executive Board has decided to increase the official rate by 1 percentage point, in one fell swoop, to 1.75%. “The forecast for interest rates is that they will continue to rise in the next six months. The behavior of inflation in the future is still difficult to assess and the Riksbank will adapt monetary policy as necessary to ensure that inflation returns to target “, sentences the statement. A movement of this caliber among advanced economies.

In this way, the Riksbank takes the lead against the European Central Bank and is above it, with interest rates at 1.75%. “That consumer prices in Sweden have increased so much is due not only to external effects, but also to the good performance of economic activity in Sweden.” In this way, the Swedish bank recognizes that the strength of demand is partly to blame for the rise in prices within the Nordic country, which forces the monetary institute to tighten its monetary policy, which although it has no impact on the pressures coming from the external, it does attack internal pressures directly.

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Inflation at 1991 highs

“The combination of substantial increases in international costs, the effects of high energy prices on other inputs and relatively strong Swedish economic activity has meant that inflation stood at 9% in August. This is the lowest level high since 1991. The risk that inflation will consolidate remains high and it is extremely important that monetary policy acts to ensure that inflation recedes and stabilizes around the 2% target in a reasonable time perspective,” he says. the monetary institution.

However, the Swedish bank also had a certain disadvantage, since in the remainder of the year it only had two more meetings scheduled, compared to the three of the ECB or the Federal Reserve. In order not to call an emergency meeting (and the chaos that this can generate in the markets and the economy), the Swedish bank could have chosen to advance some of the rate hikes. “In part, that’s because the Riksbank only has one scheduled meeting left this year after this month, which is one fewer than most central banks. In that sense, it has to make each one count, especially given expectations of a more aggressive ECB tightening in the near term,” ING analysts noted.

“Inflation, inflation expectations and interest rate hikes by other central banks favored the Riksbank hike. Growth and uncertainty surrounding the real estate market are against it. So far, the latter variable weighs relatively little, but later it can play a bigger role.Although everyone talks about electricity and interest rates, plus the rest of inflation, the big cost increases are yet to come.Despite the high prices, it is during the coldest part of the year when it really affects”, say analysts at the Swedish bank SEB.

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Similarly, they add, “it takes a couple of months before a Riksbank hike seeps into the three-month interest rate system. By the end of next month, the July hike will have taken effect almost for In other words, what is expected is how exactly it affects consumption. So far we have stuck to a political interest rate that reaches a maximum of 2.5% with a risk of rising. The situation is, at least, uncertain , and the formation of wages will be a decisive point, but there is still a long way to go”.

After this movement, the Swedish crown cut losses in its crossing against the common currency, staying at 10.795 units per euro. Before the decision of the RiksBank it had fallen to 10.77 units. Right now, the key interest rate in Sweden is 1.75%, while the Eurozone rate (set by the ECB) is 0.75%.

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