Sweden: The Riksbank delivers larger-than-expected hike in September
At its meeting on 19 September, the Riksbank delivered its largest increase in nearly 30 years: a 100 basis point raise, bringing the policy rate to 1.75%. While markets expected a hike, its size took them by surprise, as only a 75 basis point rise had been priced in. The Bank also noted that, while asset purchasing activity in H2 will be as announced in June, it will likely stop these purchases at the end of 2022.
The move was primarily driven by the Banks desire to rein in inflation, which has continued to accelerate rapidly and has surpassed the Banks previous forecasts. Growth in consumer prices with a fixed interest rate soared to 9.0% in August (July: 8.0%), the highest level in over three decades. Additionally, the Riksbank sees inflation rising further in the remaining months of the year, and it has stated that the risks of high inflation becoming entrenched are still significant. Lastly, the strong performance of the Swedish economy gave the Riksbank room to raise the rate comfortably.
With regard to forward guidance, the Riksbanks tone was hawkish in its communiqué. The Bank noted that “the policy rate will be raised further in the coming six months”. Consequently, its policy rate forecast was raised again: The policy rate is now seen ending 2022 at 2.50%—instead of Junes 2.00% forecast for early 2023.
The next monetary policy meeting is scheduled for 23 November.