STOCKHOLM (Reuters) – Sweden’s central bank hiked its key interest rate by 25 basis points to 0.25% on Thursday and flagged further tightening ahead in a radical shift of policy plans sparked by surging inflation.
The Riksbank said it would also allow its balance sheet to shrink this year, another policy shift.
“The Board’s forecast is that the repo rate will be raised gradually going forward and that it will be somewhat below 2 per cent in three years’ time,” the central bank said in a statement.
Russia’s invasion of Ukraine, which Moscow calls a “special military operation”, has added more upward pressure to prices, already on the rise due to the lingering effects of the pandemic, with inflation hitting its highest level in decades.
Inflation ran at 6.1% in March, far above the Riksbank’s 2% target.
As recently as February, the Riksbank had expected price pressures to be short-lived, saying it would not need to hike rates until 2024.
Now the Riksbank sees two or three more rate hikes this year.
(Reporting by Simon Johnson; additional reporting by Johan Ahlander, Anna Ringstrom, Niklas Pollard and Terje Solsvik; editing by Niklas Pollard)
