POLL-Swedish rate decision this week a very close call, Reuters poll shows

The string of hikes has brought down inflation, which peaked at above 10%, but the Riksbank remains worried that price pressures could become entrenched, especially as the Swedish crown remains weak. On the other hand, the economy is slowing, the labour market is beginning to turn down and housing starts have fallen off a cliff.

Sweden's central bank will hike its policy rate by a quarter percentage point to 4.25% this week to ensure inflation drops back to target, but the decision is almost too close to call, a poll of economists showed on Monday. Ten out of 19 economists plumped for an increase on Nov. 23, with a further nine saying that rates would remain unchanged at 4.00%.

"We have not beaten the inflation monster in Sweden yet," Swedbank chief economist Mattias Persson said. Market pricing also indicated a roughly even chance of a hike.

If the central bank does tighten policy again, it would be its ninth successive move in a cycle that started in April 2022 when the rate was at 0%. The string of hikes has brought down inflation, which peaked at above 10%, but the Riksbank remains worried that price pressures could become entrenched, especially as the Swedish crown remains weak.

On the other hand, the economy is slowing, the labour market is beginning to turn down and housing starts have fallen off a cliff. Further rate hikes will heap more pressure on the shaky commercial real estate sector where heavily indebted companies are struggling to refinance debts. Mortgage borrowers are also feeling the pain and house prices have fallen more than 10% since their peak in the spring of 2022. Some banks are forecasting further declines.

Economists expect the economy to shrink both this year and next. Among them, Swedbank reckons on about -0.5% this year and -0.4% in 2024. Balancing the fight against inflation against weak growth is a tricky task for the central bank and some analysts forecast interest rates have already peaked, like those in the euro area and in the United States.

"Inflation a little lower than expected together with a weaker labour market and, finally, a bit of a stronger crown has strengthened our belief that the Riksbank will leave rates unchanged," banking group SEB said. While the central bank expects rates to stay high for longer, analysts - and markets - expect a policy U-turn next year when the effects of the economic slowdown become more acute.

Analysts saw rates starting to come down as early as the second quarter while one bank predicted a cut in February.