Sweden's central bank leaves interest rate unchanged at 4 pct

Sweden
# 24 November 2023 03:41 (UTC +04:00)

Following eight consecutive hikes of its benchmark interest rate (policy rate) in the past 18 months, Sweden's central bank decided on Thursday to keep the rate unchanged at 4 percent, APA reports.

The decision of the Riksbank was based on the year-on-year inflation rate, which fell to 6.5 percent in October, according to Statistics Sweden.

However, recalling its inflation target of 2 percent, the central bank said in a press release that yet another hike may be on the cards early next year.

"Inflation is still too high and there are still risks that it will not fall fast enough going forward. Prices for services are increasing at a rapid pace and contributing significantly to total inflation," the bank said.

"The forecast for the policy rate is that it may be raised further at the start of next year and that monetary policy needs to be contractionary for a relatively long period for inflation to fall back and stabilize close to the target of 2 percent," it said.

This is not expected to happen until 2025, when inflation is expected to be 2.4 percent, after which it is expected to fall to under 2 percent in 2026, the bank added.

However, whether this will happen largely depends on the exchange rate of the Swedish krona, the value of which has changed considerably since the beginning of last year.

At the beginning of January, the exchange rate of the Swedish currency was one U.S. dollar to 9.05 kronor, but it has hovered around the 10.5 mark this week after being at around 11 from mid-August until just two weeks ago, according to the Riksbank.

"The krona is still unjustifiably weak, which is holding up the rate of price increase for goods," the bank said, adding that "monetary policy has dampened demand in the Swedish economy and is contributing to a slowdown in inflationary pressures."

In the wake of the policy rate hikes, the number of bankruptcies has risen to its highest level in a decade with the building and construction sector being especially affected, credit reference agency UC said in September.

This is also reflected in the unemployment figures. The Riksbank said that the country's unemployment rate has risen from 7.5 percent in 2022 to a projected 7.7 percent this year and is expected to peak at 8.6 percent in 2024.

Sweden's gross domestic product is expected to contract by 0.7 percent this year and by 0.2 percent in 2024 before growing by 1.9 percent in 2025, the Riksbank said.

The current policy rate is the highest since 2008. Before the Riksbank started raising its policy rate in May 2022, the rate had remained at or below zero for over seven years.

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