MNI RIKSBANK WATCH: Swedish Central Bank Signals Another Hike

The Riksbank raised its policy rate by 25 basis points to 3.75% following its June meeting and signalled a likely cycle peak just over 4.0%, together with unveiling plans to accelerate the pace of government bond sales.

While most analysts predicted the 25bp hike, markets had partially priced in 50bp, but the Swedish central bank's executive board also said its forecasts suggested that the policy rate "will be raised at least one more time this year." In addition, from September it will step up the pace of sales of government bonds to SEK5 billion per month from SEK3.5 billion.

Its quarterly forecasts showed the policy rate peaking at 4.05%, before declining only very slowly back to 3.75% at the end of the three-year forecast.

Inflation forecasts were virtually unchanged, with the target CPI measure seen falling from 5.9% this year to 2.4% next year, rather than the 2.3% foreseen in the previous forecast round, and then down to 1.8%.

The weak krona, which has dropped to its lowest levels since the global financial crisis, was cited as a factor keeping inflation higher, and Bank economists warned that the pass-through to prices from currency depreciation could be greater than in previous episodes.