Sweden's Central Bank Says It May Need to Raise Rates ‘Soon’

(Bloomberg) -- Sweden's central bank said it may soon need to raise interest rates for the first time in seven years if the pace of growth in Scandinavia's biggest economy continues to support inflation.

The Riksbank stuck to its earlier guidance, which gave policy makers a window from December until February to deliver a 25 basis-point rate increase. The bank kept its main rate at minus 0.5 percent, as expected by economists.

“If the economy develops in a way that continues to support the prospects for inflation, the executive board assesses that it will soon be appropriate to start raising the repo rate at a slow pace,” the Riksbank said in a statement on Wednesday.

Robert Bergqvist, chief economist at SEB AB, said the Riksbank's message was “crystal clear” and that policy makers are poised to deliver a quarter-point increase in December or February. “A couple of rate hikes aren't a threat to economic growth or home prices,” he said in a tweet.

The krona traded around 0.1 percent lower against the euro as of about 10 a.m. in Stockholm.

Policy makers are trying to restore a more normal interest-rate environment in Sweden as inflation shows signs of stabilizing around the Riksbank's 2 percent target, economic growth exceeds the EU average and unemployment falls. Swedish efforts to move away from an historic period of monetary stimulus follow steps taken by a number of the world's major central banks, most notably the U.S. Federal Reserve.

Home to companies such Hennes & Mauritz AB and Ericsson AB, Sweden is enjoying its longest period of economic expansion since the early 1980s. Inflation in September reached the highest level since 2008, leading several analysts to predict a December rate increase.

On Wednesday, the Riksbank said that “there are signs that inflationary pressures are rising and the conditions are good for inflation to remain close to the target of 2 percent in the coming years.”

Deputy Governors Martin Floden and Henry Ohlsson both argued in favor of raising the repo rate to minus 0.25 percent, according to Wednesday's statement. The Riksbank said that Floden “referred to the upturn in inflation and the strengthened confidence in the inflation target,” while Ohlsson pointed to “the strong economic outcome in Sweden and abroad.”

At Svenska Handelsbanken AB, economist Johan Lof said the expectation is that the Riksbank will wait until February before hiking. The choice of wording for the forward guidance from policy makers leaves “a genuine uncertainty in the choice between December or February” for the first increase, he said.

To contact the reporters on this story: Rafaela Lindeberg in Stockholm at rlindeberg@bloomberg.net;Amanda Billner in Stockholm at abillner@bloomberg.net

To contact the editors responsible for this story: Jonas Bergman at jbergman@bloomberg.net, Tasneem Hanfi Brögger, Christian Wienberg