Riksbank Gov. Erik Thedeen (R) and Monetary Policy Department Deputy Head Mattias Erlandsson address a press conference in Stockholm on Wednesday, announcing they were forced to raise Sweden's interest rate to its highest level since 2008 because inflation remained "far too high." Photo by Anders Wiklund/EPA-EFE
April 26 (UPI) -- Sweden's central bank raised its policy interest rate Wednesday by 50 basis points to 3.5% in a bid to tame "far too high" inflation, warning it would likely be followed by a further quarter percentage point hike in June or September.
Disregarding falling energy prices, higher-than-expected inflation during the first months of the year had persuaded the Executive Board that higher interest rates were necessary in order for inflation to fall and stabilize at the 2% target within a reasonable period, Riksbank said in a news release.
"Inflation is still far too high," which together with higher underlying inflation "affects in particular households that have small margins to begin with, but the development is negative for the whole economy," the bank said.
"Low and stable inflation is a necessary condition for good economic development. It is important for confidence in the inflation target that inflation falls clearly this year."
But Riksbank stressed that any future rate adjustments depend on what happens to inflation and the economy.
"There is still considerable uncertainty regarding inflation developments. New information and how it is assessed to affect the economic outlook and inflation prospects will be decisive in determining the monetary policy conducted."
Two of the executive board's six members, First Deputy Gov. Anna Breman and Deputy Gov. Martin Floden, argued against the decision to raise the policy rate by 0.5 percentage points, advocating for 0.25% instead and an interest rate path that indicated a high probability of further increases in either in June or September, or both.
Inflation has been falling -- although not in a straight line -- since December after peaking at a 30-year high of 12.1% but remained in double-digits in March at 10.6%. The bank said the 1.4% fall from 12% in February was mainly due to lower energy prices.
Riksbank said the krona has not been a decisive factor behind the substantial rise in inflation but had "contributed to somewhat higher inflation" and that a stronger krona "would be desirable in this situation."
A weaker currency pushes up the price of imported raw materials and goods, adding to consumer price inflation.
The bank forecasts that inflation will be back within eyeshot of its 2% target at some point next year.
