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Minutes seen as hawkish
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Underlying inflation pressure up in Jan
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Riksbank seen tightening further and faster
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Next policy meeting in late April
(Adds c.bank, analyst quotes)
By Simon Johnson
STOCKHOLM, Feb 20 (Reuters) - Inflation is too high in
Sweden, where a hawkish central bank may need to raise its
benchmark interest rate faster and further than it forecasts,
analysts said, following new inflation data and the minutes of
February's policy meeting.
With consumer price inflation peaking, many central banks
are slowing the pace of rate hikes and taking stock of the
impact of rapid policy tightening over the last year.
But inflation in Sweden is running hotter than in many other
countries, due in part to the weak crown currency, pressuring
the Riksbank to keep on tightening. Fresh figures published on Monday showed underlying
inflation had picked up, and at a faster rate than the Riksbank
had forecast.
Although February and March inflation outcomes will be published before the next policy meeting, analysts were confident the Riksbank will need to act tough. "We change our call and expect the Riksbank to hike by 50 basis points in April and an additional 25 basis points in June," economists at Swedbank said in a note after the inflation figures. Markets see rates peaking at above 3.5% and the Swedish crown was trading stronger against the euro after the data. The Riksbank announced a half percentage-point hike to 3.0% on Feb. 9. It forecast at least a quarter-point hike in April, its next meeting, with the policy rate peaking at 3.3%. However, it said the rate path was data dependent and all six rate-setters struck a hawkish tone in the minutes of the meeting, published on Monday. "Our task is now crystal clear - to ensure that inflation returns to the target within a reasonable time," said Erik Thedeen, presiding over his first rate meeting as governor of the central bank. The weak crown was an additional factor in favour of more aggressive rate hikes. "A weak krona, and possible continued depreciation are not welcome," Thedeen said. "This would increase the risk that inflation will not fall in the way shown in the forecasts in the Monetary Policy Report." The crown has strengthened since the February rate decision, hen the Riksbank also said it would sell down its government bond portfolio. But the Riksbank risks sentiment turning negative again unless it keeps pace with hefty rate hikes expected from the European Central Bank over the coming months. Money markets now show investors betting on a peak ECB rate at around 3.75% by late summer. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Swedish rates and inflation: ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Stockholm Newsroom; editing by Niklas Pollard and Bernadette Baum)
Messaging: simon.c.johnson.reuters.com@reuters.net))