Sweden’s central bank raised its policy rate by half a percentage point to 3.50%.
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Sweden’s central bank raised its policy rate by half a percentage point to 3.50% in line with market forecasts on Wednesday and said it was nearly done with policy tightening.
With inflation near 30-year highs, central banks have raised rates aggressively in recent quarters. The pace of hikes has now slowed as rate-setters eye financial market turmoil and slowing economies. But their job is not yet done.
“Following the rapid policy rate hikes over the past year, monetary policy has a tightening effect on the economy and the Executive Board assesses that after the April meeting there will be scope to adjust the policy rate in smaller steps,” the central bank said in a statement.
While the half-percentage point hike was in line with forecasts, markets cut their expectations of where the Riksbank policy rate will peak to around 3.75% from close to 4.0% prior to the decision.
“Either the Riksbank knows something more about inflation than the rest of us do, or they believe that inflation will fall sharply during the second and third quarters,” Lars Kristian Feste, head of fixed income at Ohman Fonder, said.
Underlying inflation in Sweden – at 8.9% – has started to ease, but remains far above the 2% target and there are worries it could remain high longer than currently expected.
The Swedish crown weakened after the announcement, an unwelcome development for the central bank which has complained the weak crown has made its inflation-fight job more difficult.
The dovish tilt in policy was underlined by two of the five rate-setters voting for a smaller hike this time.
Deputy Governors Martin Floden and Anna Breman wanted a quarter point hike with the flexibility to hike more or less later this year.
The central bank said it would continue to focus on new data in determining policy ahead and uncertainty remains high.