Swedish central bank raises key interest rate, sees more tightening

Sweden's central bank raised its policy rate by a quarter percentage point to 3.75% as expected on Thursday and said it had decided to increase the pace of bond sales while forecasting at least on more rate hike this year. Analysts in a Reuters poll ahead of the decision were unanimous in forecasting a quarter-point hike.

Sweden's central bank raised its policy rate by a quarter percentage point to 3.75% as expected on Thursday and said it had decided to increase the pace of bond sales while forecasting at least on more rate hike this year.

Analysts in a Reuters poll ahead of the decision were unanimous in forecasting a quarter-point hike. "The forecast is for the policy rate to be increased at least one more time this year," the Riksbank said in a statement.

The Swedish crown, which hit a record low against the euro earlier this month, saw volatile trade but was slightly weaker by 0748 GMT compared to just before the decision. The Riksbank said separately it was considering hedging part of its foreign exchange reserves as a way to reduce the Riksbank's financial risks.

Headline inflation in Sweden has started to come down but, at 6.7% in May, remains significantly above the central bank's 2% target. At its previous meeting in April, the Riksbank raised its key rate by a half percentage-point to 3.50% and said it expected to hike again by 25 basis points in June or September before drawing a line under its tightening cycle.

Markets have been pricing in a further hike to take rates to 4% by year end. After cranking up rates over the past year, global policy-setters are balancing the need for more hikes, to make sure inflation drops back to target, against the risk of smothering already slowing growth.

With rate hikes working with a lag and some economies more sensitive to tighter policy than others, it is not a straightforward job, but most central banks have put inflation-fighting ahead of growth worries. The Federal Reserve has paused its hikes for now, but sees more tightening by year end, while the European Central Bank has also signalled more hikes to come.

The Riksbank is in a bind. Parts of the economy are strong, but heavily indebted households - and commercial real estate firms - are highly sensitive to interest rate changes and are struggling.