Sweden's big interest rate hike follows other central banks

STOCKHOLM: Sweden's central bank followed other central banks in undertaking a big increase to its key interest rate to combat inflation, saying on Thursday that high prices are undermining people's purchasing power and making it tough for households and companies to plan their finances.

Riksbanken said the rate hike of three-quarters of a percentage point — the highest in 14 years, according to Swedish news agency TT — was meant “to bring down inflation and safeguard the inflation target.''

Consumer prices rose 9.3 per cent in October from a year earlier, lower than the 9.7 per cent seen in September.

The increase brings the key rate to 2.5 per cent in the European Union country, which does not use the euro currency so it is not part of the European Central Bank's decision-making.

It comes as the ECB, US Federal Reserve and other central banks have made similar large rate increases to fight inflation that has been squeezing people around the world.

In Sweden, the forecast “shows that the policy rate will probably be raised further at the beginning of next year and then be just below 3 per cent,” the bank said.

“It is still difficult to assess how inflation will develop and the Riksbank will adapt monetary policy as necessary to ensure that inflation is brought back to the target within a reasonable time,” the bank said in a statement.

The decision on the policy rate will apply with effect from November 30.