Risk of Swedish inflation getting stuck above target has grown: Riksbank minutes

THE risk that Swedish inflation becomes entrenched above the 2 per cent target has increased, central bank governors said on Monday (Jul 10) in the minutes of the bank’s most recent policy meeting.

The Riksbank raised its policy rate by a quarter percentage point to 3.75 per cent on Jun 29, increasing the pace of government bond sales while forecasting at least one more rate hike this year.

Headline inflation in Sweden has started to come down but, at 6.7 per cent in May, remains significantly above the central bank’s 2 per cent target.

“My assessment is that the inflation risks are overall on the upside,” Central Bank governor Erik Thedeen said in the minutes.

“I therefore do not rule out that we may have to increase the policy rate more than is indicated in the rate path in the draft report,” he said.

Several members said that the risk of inflation becoming entrenched at too high a level had increased.

“I fear that we may need to revise the plan further in a tighter direction going forward,” Deputy governor Per Jansson said in the minutes.

“This is because, at present, my assessment is that the inflation outlook has greater upside risks than downside risks,” he said.

The Swedish krona, which has weakened sharply against the euro this year, strengthened somewhat after the minutes.

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Bank SEB wrote in a note that the minutes were “a bit hawkish” and said that the concern about inflation has increased considerably.

“Another rate hike in September is very probable and the minutes imply upside risks to our forecast that the Riksbank will keep rates on hold after hiking by 25 basis points in September,” it said. REUTERS