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Sweden Monetary Policy April 2023

Sweden: Riksbank delivers another 50 basis point increase in April and nears the end of the tightening cycle

At its 25 April meeting, the Riksbank delivered another 50 basis point increase and brought the policy rate to 3.50%—the highest level since November 2008—effective from 3 May. The move, which markets had priced in, came on the heels of February’s same-sized hike. The decision regarding the size of the hike was not unanimous: Two of the members preferred a 25 basis point rise. The Riksbank also announced it would continue to reduce its asset holdings.

The decision to hike was driven by consumer price inflation with a fixed interest rate (CPIF) and core inflation remaining uncomfortably high. Moreover, underlying price pressures have systematically surpassed the Riksbank’s forecasts. Inflation expectations were upwardly revised as well: The Riksbank now sees CPIF averaging 5.9% in 2023, from 5.5% at the February meeting. The new expectation is nearly three times the Bank’s 2.0% target. The Bank still expects inflation to fall and stabilize close to its target in 2024.

With regard to economic activity, the Riksbank now sees a smaller 0.7% GDP decline this year instead of the 1.1% contraction forecasted in February. The improvement likely provided some room to the Bank for another 50 basis point increase.

With regard to forward guidance, the Bank noted it could slow the pace of its tightening cycle, and be near its end. It anticipated a smaller 25 basis points increase at either its next meeting, scheduled for 28 June, or the following one in September.

The outcome of the next monetary policy meeting will be announced on 29 June.

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