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Riksbank says inflation still far too high
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Sees another hike in June or September
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Two rate-setters voted for quarter point hike now
(Adds governor comment, crown reaction)
STOCKHOLM, April 26 (Reuters) - Sweden's central bank
raised its policy rate by half a percentage point to 3.50% as
expected on Wednesday and said it was nearly done with policy
tightening, delivering a dovish message that surprised markets
and sent the crown tumbling.
With inflation near 30-year highs, central banks have raised
rates aggressively in recent quarters. The pace of hikes has now
slowed as rate-setters eye financial market turmoil and slowing
economies as well as signs that inflation has peaked, but they
are not quite done yet.
In Sweden, underlying inflation - at 8.9% in March - has started to ease, but remains far above the Riksbank's 2% target. "Inflation is high and that's worrying. But we also see a development where inflation is going to slow, that's our main scenario," Governor Erik Thedeen told reporters. The Riksbank said the policy rate will probably be raised by a further 0.25 percentage points in June or September. While the half-percentage point hike was in line with forecasts, the rate path was a surprise.
The dovish tilt in policy was also underlined by two of the
five rate-setters voting for a smaller hike this time.
Deputy Governors Martin Floden and Anna Breman wanted a
quarter point hike with the flexibility to tighten more or less
later this year.
Markets cut their expectations of where the Riksbank policy
rate will peak to around 3.75% from close to 4.0% prior to the
decision. The Swedish crown slipped around 1% against the euro after
the announcement, an unwelcome development for the central bank
which has complained the weak currency has made fighting
inflation more difficult. The European Central Bank is expected to hike by only a
quarter percentage point on May 4, which could give the crown
some breathing room. Still, the ECB's peak rate is expected to
hit 3.75%. The crown "could face further headwinds if the Riksbank does
not follow the ECB, which we expect will hike by another 75
basis points", banking group Swedbank said.
Swedbank said the Riksbank would hike by a quarter point in
June and again in September, taking the policy rate to 4.0%.
"If incoming data surprises negatively, that's to say it
indicates higher inflation, the Riksbank will hike rates more
than is in the rate path," Thedeen told reporters.
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Swedish rates and inflation: ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by Simon Johnson; additional reporting by Stockholm
and Oslo newsroooms; Editing by Niklas Pollard, Sharon Singleton
and Tomasz Janowski)
