The Swedish central bank may have to raise interest rates more than indicated in its rate path if inflation does not drop as fast as projected, Riksbank Governor Erik Thedeen told Swedish newspaper Svenska Dagbladet on Friday.
The central bank has hiked rates to 3.5% from zero just over a year ago in a bit to bring down inflation far above the 2% target. Inflation has proved to be much tougher to bring down than the Riksbank and economists predicted a year ago.
“Inflation is perhaps more difficult to curb than we might have thought. It is a little more persistent,” Thedeen was quoted as saying by the Swedish daily.
“If it does not get down on the right path – that is that it turns clearly downwards in the next few months to six months – it is clear that it will affect our monetary policy,” he said.
The Riksbank hiked rates by 50 points to 3.50% in April and said it would most likely hike by another 25 points in June or September.
However, the effects of the rate hikes have not been as big as expected. The economy is still in good shape, with relatively low unemployment and some property prices have even started to recover slightly after initial sharp falls.
“Every time we have presented a new interest rate forecast, we have later adjusted it up,” Thedeen told the paper. “It is probably a sign monetary policy may not bite as we have thought.”
Swedish headline inflation cooled to 8.0% in March, from 9.4% in February. Inflation figures for April are due on May 15.
Thedeen also said he believed the Swedish crown should be stronger than it is and that the weakness was a problem, but added he did not want the Riksbank to buy crowns to prop up its value. (Reporting by Johan Ahlander; editing by Niklas Pollard)
