The Riksbank, Sweden’s central bank, has raised the interest rate to 4.5 per cent, it’s highest in 12 years, and has suggested it could go higher.
The one quarter of a percent raise of the one-week repo rate is part of measures to combat inflation, and fulfils predictions of economic observers.
“The substantial rises in food and oil prices risk leading to other prices rising too quickly,” the central bank said in a statement.
“The repo rate needs to be raised now and on a couple of further occasions during the year to bring inflation back towards the target a couple of years ahead.”
With spiralling oil prices and economic fallout from the US sub-prime crisis, the bank had little choice but to follow the example of Norway a week earlier, amid rumours the European Central Bank is also imminently going to announce a rate hike.
Consumer prices in Sweden rose 4 per cent year-on-year this May, the fastest rise in more than 15 years. The growth rate has also slowed for six of the last seven quarters, growing just 2.2 per cent in the first quarter of this year.
“Inflation is already high and it’s going to go higher,” Dominic Bryant, an economist at BNP Paribas in London, said before the Riksbank decision.