In a series of central bank decisions that have dominated markets over the past week, Sweden's Riksbank has raised its key policy rate from 3.75% to 4.00%, as part of its ongoing efforts to combat high inflation. The bank announced on Thursday that it might need to further increase rates for inflation to fall back and stabilize.
The Riksbank's new rate path indicates that the rate will peak at around 4.10% in the third quarter of 2024, up from 4.05% previously, and will remain at this level until a first cut in 2025. "The assessment is that monetary policy needs to be contractionary for a longer period of time for inflation to fall back and stabilize," said the central bank.
To fight a weak krona, the central bank plans to hedge a part of its foreign exchange reserves by selling $8 billion and €2 billion ($2.13 billion) for Swedish kronor. The Riksbank currently meets five times a year but has decided to increase the number of meetings to eight from next year. Governor Erik Thedeen stated that more meetings would allow the Riksbank to adapt monetary policy more rapidly to the prevailing situation and communicate a coherent view on economic developments more frequently.
Meanwhile, other central banks have also been in action. On Wednesday, the U.S. Federal Reserve held rates steady, projecting another rate hike by year end and much tighter monetary policy through 2024 than previously expected. This has led investors' focus to remain on central banks with rate-setting meetings scheduled for Thursday in Britain, Norway, Sweden, and Switzerland.
In Europe, bond yields rose on Thursday to multiple-month highs following the Federal Reserve's decision. Germany's 10-year government bond yield touched a fresh six-month high while the German 2-year bond yield, sensitive to changes in interest rate expectations, hit its highest since mid-July.
The Bank of England's meeting later in the day is closely watched after Britain's high inflation rate slowed unexpectedly, raising the prospect of the BoE pausing its long run of interest rate hikes. The Swiss National Bank held its policy interest rate unchanged at 1.75% on Thursday, marking the first time the central bank has not hiked rates since March 2022.
These decisions come a week after the European Central Bank raised interest rates as it continues to battle sticky inflation. Investors are now looking forward to the next set of interest rates in late October.
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