Riksbank Pencils in First Rate Hike Toward End of 2024

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by Dominic Chopping

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STOCKHOLM – Sweden’s central bank on Thursday kept its key repo rate at 0%, as expected, and indicated that the first rate hike is likely at the end of 2024.

The Riksbank had earlier said that it expects the repo rate to remain unchanged at zero in its forecast horizon running through the third quarter of 2024, but updated forecasts presented on Thursday show a rate hike in the fourth quarter of 2024.

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The bank also said that it will begin shrinking its balance sheet ahead of the forecast rate hike.

“The Executive Board forecasts that asset holdings will remain virtually unchanged in 2022 and then gradually decrease,” it said.

“With this monetary policy in place, inflation is expected to remain on target for a long time.”

The asset purchase program launched in March 2020 will end on 31 December 2021 and the Riksbank said it will buy bonds for 37 billion Swedish kronor ($4.05 billion) during the first quarter of 2022.

The bank said inflation in Sweden is expected to fall next year as growth in energy prices is expected to moderate, while supply-chain constraints will be resolved as growth enters a calm phase.

If inflation is to be kept close to the target over the long term, cost pressures need to increase more permanently, requiring continued support from monetary policy.

Write to Dominic Chopping at [email protected]

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