Riksbank Raises Rates, Signals Further Tightening Ahead

The Sveriges Riksbank raised its policy rate by 25 basis points to 2.0% at its November meeting, as widely expected, bringing borrowing costs to their highest level in over a year. The move marked the central bank’s first rate hike since September 2023, with policymakers pointing to stronger economic activity and rising costs stemming from supply disruptions as factors likely to push inflation higher. The Riksbank also signaled that further tightening is likely in the coming year if the outlook for inflation and economic activity evolves as expected, reaffirming its September policy rate forecast.

The Riksbank left its policy rate unchanged at 1.75% in line with market expectations, but signalled that rates are likely to rise further as economic activity strengthens while supply shocks persist. The Riksbank said it would accelerate tightening if inflation rises more persistently. If the outlook remains unchanged, rate increases are expected to begin this year. Swedish inflation in August was broadly in line with the Riksbank’s June forecast, although the headline rate remains low partly because of temporary fiscal measures. Underlying inflation is relatively close to 2%, while indicators suggest price pressures remain above normal and could increase in the near term. GDP growth exceeded expectations in Q2, although some of the strength was temporary, while the broader recovery and economic sentiment have improved. Risks to inflation remain elevated, with higher oil, electricity and fuel prices, a weaker krona and continued Middle East conflict intensifying price pressures.

The Riksbank left its policy rate unchanged at 1.75% in August, judging that the overall economic outlook remains broadly stable despite recent surprises in growth and inflation. Both measures have been stronger than anticipated in June, while the summer’s inflation readings have raised concerns that supply disruptions linked to the Middle East conflict could generate more persistent price pressures. However, underlying inflation excluding energy and temporary fiscal effects remains close to 2%, while subdued corporate pricing plans and easing global supply-chain disruptions suggest that inflationary pressures are not yet entrenched. The central bank therefore considers the current policy stance appropriate but maintains the possibility of a rate increase later this year. It warned that a sustained acceleration in underlying inflation would prompt tighter policy.