Sweden's central bank announces sharpest rate hike in 22 years

STOCKHOLM, June 30 (Xinhua) -- Sweden's central bank, Riksbanken, announced on Thursday the sharpest policy rate (previously repo rate) increase in 22 years -- by 50 basis points to 0.75 percent.

The decision will apply from July 6.

The Riksbanken also believes that further increases will be needed to combat the highest inflation in decades and forecasts a policy rate of close to 2 percent by the beginning of 2023.

This is considerably higher than what the Riksbanken communicated in mid-February, when it decided to hold the policy rate at zero percent. Back then, their prognosis was that the rate would slowly increase to 0.2 percent by the second half of 2024.

"Inflation is far too high. It is spreading in the economy and is noticeable and expensive both for households and others, and this creates uncertainty in the Swedish economy," Riksbanken Governor Stefan Ingves said at a press conference.

Statistics Sweden has recently presented inflation figures for May, revealing that consumer prices had increased by 7.2 percent in a year.

In a press release, the Riksbanken said that inflation "is expected to remain above 7 percent for the remainder of the year."

Besides adjusting the policy rate, the Riksbanken has also decided to use another tool to rein in inflation.

"The Executive Board has also decided that, in the second half of the year, the Riksbanken's asset holdings shall shrink faster than was decided in April."

To achieve this, the Riksbanken has decided to purchase bonds for 18.5 billion Swedish kronor (1.8 billion U.S. dollars) during the second half of the year instead of 37 billion kronor as previously planned.

"With this monetary policy, inflation is expected to fall back next year and be close to 2 percent from 2024," the Riksbanken said in a press release.

The Riksbanken, however, also acknowledged that the inflation prospects are uncertain and said that it is "prepared to raise the policy rate faster if this is needed" to ensure that inflation returns to its 2-percent target.