Riksbank Governor Erik Thedeen has said that the Swedish central bank may have underestimated inflationary pressure and will likely adhere to its forecast of another interest rate hike in April.
The central bank has raised interest rates to 3% from 0% a year ago, but has yet to curtail inflation, which is 9.4% and well above the target of 2%. It increased the benchmark interest rate by 50 basis points in February and has signaled a further 25 to 50 basis point increase in April.
“It could be that the inflation process is worse than we thought,” said Thedeen, speaking to SVT television
In February, inflation surged in Sweden. While headline inflation at 9.4% was in accordance with the Riksbank’s forecast, underlying price pressures – excluding volatile energy prices – increased to 9.3% year-over-year, up from 8.7% in the previous month and exceeding the Riksbank’s forecast of 8.0%.
Some economists urge the Riksbank to halt the cycle of rate increases, arguing that higher rates could derail the interest-rate-sensitive Swedish economy and, in the worst case, spark a financial crisis.
However, Thedeen stated that a 25- or 50-basis-point increase in April remained the most likely scenario and that inflation outcomes since the monetary policy decision in February had been worse than anticipated.
“According to our projections, inflation will rapidly decline. The issue is that it has been in our forecasts throughout 2022, but it has not yet occurred “Thedeen said.
On April 26, the Riksbank will declare its next monetary policy decision.