Sweden's central bank leaves rates on hold

(Sharecast News) - Sweden's Riksbank opted to leave its key policy rate unchanged on Thursday, as widely expected, but warned of possible rises to come. The central bank's executive board left interest rates at 1.75%, arguing that while the supply shocks from war in the Middle East and global cost pressures remained elevated, the global economy had "to some extent" been able to adapt.

It noted that Swedish inflation was relatively close to 2%, and that the country's economic upturn appeared broad. Sentiment had also improved. However, the board warned that supply shocks remained, with oil, electricity and fuel prices rising, and the krona weakening.

It therefore concluded that the combination of stronger economic activity alongside the ongoing supply shocks meant policy rate might have to be raised by more than initially forecast.

"If the outlook for inflation and economic activity remains unchanged, the executive board assess that the increases in policy rate will begin this year," it argued. "The developments call for vigilance. In addition to war in the Middle East, there are also other risks that would, individually or jointly, affect the outlook for inflation and economic activity.

"If there were to be signs of a larger and more persistent upturn in inflation, the Riksbank would raise the policy rate at a faster pace than in the current forecast."

ING currently expects the Riksbank to start hiking rates in November, primarily on the back of the stronger-than-expected second quarter growth.

Central banks around the world are facing a spike in inflationary pressures on the back of the US-Iran war, which has thrown global energy markets into turmoil. The Swiss National Bank also left rates on hold on Thursday, at 0%, but Norges Bank opted for a 25 basis points rise to 4.5%