STOCKHOLM (Reuters) – Sweden’s central bank must act robustly to get inflation under control or rising prices could become entrenched, rate-setters said in the minutes of the central bank’s most recent policy meeting, published on Thursday.
The Riksbank hiked its benchmark rate by a full percentage point on Sept. 20 to 1.75% with further hikes likely in November and then again in February next year.
“To safeguard credibility in the inflation target, monetary policy needs to have full focus on bringing inflation back to the target within a reasonable time,” Governor Stefan Ingves, who is set to leave the bank at year-end, said in the minutes.
While rate-setters stressed that there was a huge amount of uncertainty about how inflation and the economy would develop, they were in broad agreement over plans for further tightening in the coming months.
“High inflation risks setting off a spiral of price increases, wage drift, price increases, wage drift and so on in the near term,” Deputy Governor Henry Ohlsson said. “It is essential to ward off these tendencies in time.”
The crown currency strengthened slightly after the minutes were published.
As late as February this year the Riksbank was forecasting that rates – then at 0% – would not rise until the second half of 2024. But surging prices across the economy have caused a dramatic shift in policy.
Headline inflation hit 9.0% in August – a 30-year high – prompting the Riksbank into its biggest one-off hike since 1992 when the country was in the grips of a withering domestic financial crisis.
The Riksbank expects the policy rate to hit 2.5% in the second quarter of next year.
Markets, however, are betting that persistently high inflation will force the Riksbank to be more aggressive, with the policy rate seen topping out around 3.5% by the middle of next year.
(Reporting by Stockholm Newsroom; editing by Niklas Pollard)
