STOCKHOLM, Sept. 21 (Xinhua) -- Sweden's central bank on Thursday decided to increase the policy interest rate by 25 basis points to 4 percent, which will take effect from Sept. 27.
The Riksbank also indicated the likelihood of further hikes in the next 12 months to combat inflation.
This marked the eighth consecutive rate hike since May 2022. Despite a decrease in year-on-year inflation to 7.5 percent in August from its peak of 12.3 percent in December 2022, the Riksbank emphasized that "monetary policy needs to be contractionary for a longer period of time for inflation to fall back and stabilise close to the target of 2 percent."
Considering a forecast inflation of 4.6 percent in 2024, the bank said that it expected additional policy rate increases, aiming for a quarterly mean value of 4.10 percent in Q3 2024, a figure slightly higher than what was outlined in the Riksbank's earlier report in June.
Despite a significant slowdown in the rate of food and energy price increases, the Riksbank expressed concern about persistently high inflationary pressure, primarily driven by rapidly rising service prices. This, coupled with the "unjustifiably weak krona," heightens the risk that "inflation will not continue to fall and stabilise around target sufficiently quickly," it cautioned.
Before the Riksbank started raising the policy rate in May 2022, the rate had remained at or below zero for over seven years.
Since then, the euro has appreciated by 14.8 percent and the U.S. dollar has strengthened by 13 percent, according to data from the Riksbank. (1 Swedish krona = 0.089 U.S. dollar)