Swedish central bank keeps interest rates on hold in surprise move 

THE Riksbank paused its tightening campaign, refraining from inflicting a ninth increase in borrowing costs on an increasingly sickly Swedish economy.

Policymakers led by governor Erik Thedeen left the benchmark interest rate at 4 per cent, in a decision that had split economists. A majority predicted a hike, though eight out of 21 forecasts compiled by Bloomberg anticipated no change. Officials said government bond sales may need to accelerate next year.

“Monetary policy has dampened demand in the Swedish economy and is contributing to a slowdown in inflationary pressures,” the Riksbank said in a statement on Thursday (Nov 23). Still, “the Executive Board assesses that monetary policy needs to be contractionary and is prepared to raise the policy rate further if inflation prospects deteriorate.”

The decision aligns Sweden’s central bank with peers in the US, eurozone and the UK that have already halted for now. Officials opted not to squeeze the economy further even as the krona’s feebleness risks importing more cost pressures and services price growth remain elevated.

The currency weakened as much as 0.5 per cent after the decision to 11.4522 against the euro at 9:30 am in Stockholm.

The Riksbank still warned that borrowing costs could be lifted again in 2024.

“The forecast for the policy rate is that it may be raised further at the start of next year and that monetary policy needs to be contractionary for a relatively long period of time,” officials said. That chimes with global counterparts that have signalled borrowing costs will need to stay higher for longer.

The case cited by economists for a ninth hike was stubbornly high inflation, and the vulnerability of the Swedish krona to setbacks after recent strengthening. Analysts acknowledged however that weak economic data and the currency’s recent strengthening also supported arguments for a pause.

Tightening started in April last year. The mounting fallout includes a dent in consumption, a plunge in housing construction and a squeeze on some highly leveraged property owners that are struggling to refinance maturing debt.

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Even the hitherto resilient labour market is now weakening, and the central bank has come under pressure from labour unions as well as employers’ organisations warning that increasing borrow costs further could harm the nation’s economy unnecessarily.

The Riksbank now expects a 0.7 per cent decline in gross domestic product this year, followed by a contraction of 0.2 per cent in 2024. BLOOMBERG