Sweden’s central bank raises interest rates by one percentage point

Sweden’s central bank raised interest rates by one percentage point to 1.75% on Tuesday in a surprise move and warned more was to come as it sought to tame soaring inflation.

The increase was the largest since November 1992, when the Riksbank also raised its key rate by one percentage point.

“Inflation has become higher than in the Riksbank’s previous forecast in June, and is expected to rise further over the course of the year,” the Riksbank said in a statement.

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“The forecast for the policy rate is that it will continue to rise over the next six months.”

The central bank cannot do much about the current level of inflation. But rate setters don’t want soaring prices to spill over into higher wage demands, which would make the job of getting back to the 2% inflation target that much harder in the long run.

The hikes will continue despite forecasts that the economy is heading for a sharp downturn – possibly even a recession.

The overwhelming majority of analysts in a Reuters poll had forecast a 75 basis point rise this week. Two analysts were expecting a full percentage point.

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