© Reuters. FILE PHOTO: Sweden’s Riksbank Governor Erik Thedeen speaks during a news conference in Stockholm, Sweden, February 9, 2023. TT News Agency/Jonas Ekstromer via REUTERS
STOCKHOLM (Reuters) – The Swedish central bank might have underestimated inflationary pressure and will likely have to stick to its forecasts of another interest rate hike in April, Riksbank Governor Erik Thedeen said on Sunday.
The central bank has raised rates to 3% from 0% a year ago and has yet to curb 9.4% inflation, well above the 2% target. It hiked the benchmark rate by 50 basis points in February and has indicated another hike by 25 or 50 basis points in April.
“It could be that the inflation process is worse than we thought,” Erik Thedeen told SVT television.
Swedish inflation soared in February. While headline inflation at 9.4% was in line with the Riksbank’s forecast, underlying price pressures – stripping out volatile energy prices – jumped to 9.3% year-on-year, up from 8.7% in the previous month and above the Riksbank forecast of 8.0%.
Some economists urge the Riksbank to pause the cycle of hikes, arguing that higher rates could derail the interest-rate sensitive Swedish economy and, in a worst-case scenario, trigger a financial crisis.
However, Thedeen said the main scenario remained a hike of 25 or 50 basis points in April and added that inflation outcomes since the monetary policy decision in February had been worse than expected.
“It is in our forecasts that inflation will come down quite quickly. The problem is that it has been in our forecasts all through 2022 and it has yet to happen,” Thedeen said.
The Riksbank will announce its next monetary policy decision on April 26.