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Sweden Monetary Policy April 2022

Sweden: Riksbank unexpectedly delivers key rate hike in April

At its meeting on 27 April, the Riksbank surprised market analysts by raising its key repo rate to 0.25%—effective from 4 May—from 0.00%, where it has been since December 2019. The decision signaled the resumption of a tightening cycle that had started in December 2018. Meanwhile, the Riksbank confirmed it will slow the rate of asset purchasing, and is set to acquire SEK 37.0 billion (around USD 4 billion) of bonds in H2.

The delivery of the rate increase reflected markedly higher-than-expected inflation—the highest seen in decades—and the assessment that it will remain elevated for some time. With the move, the Bank intends to prevent high inflation from becoming “entrenched in price-setting and wage-formation” and to tame inflation this year and next so it falls close to its 2.0% target by 2024.

With regard to forward guidance, the Riksbank’s tone turned somewhat hawkish in its communiqué. The Bank signaled that it will deliver two or three more rate increases in the remainder of 2022. Moreover, it said that it projects its key repo rate to be around 2.00% by the end of the forecast period in mid-2025. In line with this, our panelists have penciled in two more rate hikes for this year and see the rate ending 2022 at 0.75%.

The next monetary policy announcement will be published on 30 June.

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