Swedish Central Bank raises key interest rate to 2%, signals further increases

Just as analysts predicted, the Swedish Central Bank has chosen to raise the key interest rate by 0.25 percentage points to 2.0 percent.

“Today's announcement can be interpreted as the Swedish Central Bank catching up with other central banks, which raised interest rates earlier,” says Susanne Spector, chief economist at Danske Bank.

The Swedish Central Bank justifies the decision by saying that stronger economic activity, combined with cost increases due to supply disruptions, means inflation is expected to rise.

Swedbank's chief economist, Mattias Persson, believes the central bank was right to raise the interest rate.

“If we look ahead to November, December and the beginning of next year, we believe inflation will rise. I believe the Swedish Central Bank shares that view, and that is when it needs to act,” he says.

Wednesday's interest rate hike could be followed by further increases.

Increases next year

In a press release, the Swedish Central Bank writes that “if the inflation and economic outlook hold, it is likely that the policy rate will be raised further in the coming year”. This is in line with the Swedish Central Bank's forecast from September.

Danske Bank expects a further increase in early 2027.

“Our assessment is that the Swedish Central Bank will raise rates in February and March next year,” says Spector.

At the same time, the Swedish Central Bank highlights several risks that could affect the current outlook, including supply disruptions that could cause inflation to rise sharply.

It also mentions geopolitical uncertainty, concerns about AI investments and weak government finances in some countries.

Weaker euro

The krona will also be important to keep an eye on going forward, says Susanne Spector.

“That was a concern ahead of the September meeting. When the Swedish Central Bank turned around and clearly signalled that interest rate increases would also be coming in Sweden, the krona stabilised, and now we have a little help from the turbulence in Europe, which has caused the euro to weaken,” she says.

Wednesday's interest rate announcement has had a marginal impact on the markets. The Swedish krona is down one öre against the US dollar and the euro. Meanwhile, the Swedish ten-year interest rate has risen by one basis point to 3.08 percent.

Correction: An earlier version gave the wrong year for the previous interest rate increase. The correct year is 2023.