Sweden’s currency rallied after the central bank raised its main interest rate on Thursday for the first time since 2011.
The Riksbank lifted the key policy rate to minus 0.25 per cent from minus 0.5 per cent, surprising some economists who had changed their expectations after the country’s underlying inflation cooled to weaker than expected levels.
Sweden’s currency, the krona, reacted well to the announcement gaining 0.7 per cent against the euro to SKr10.266.
The bank tempered expectations, saying that with uncertainty over the economic outlook and inflation prospects, monetary policy “needs to proceed cautiously”. It said its next rise — which investors believe would bring the repo rate to 0.05 per cent — “will probably occur” in the second half of 2019.
Analysts from SEB said the lowered rate path “suggests that the board will hike more gradually than we predict and we delay the timing of the second rate hike to October 2019, from July 2019”.
SEB said they expect just one rate rise in 2019, adding: “We continue to see downside risks to Riksbank’s inflation forecast, which means that risks are skewed towards a later hike.”
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