Sweden's Riksbank keeps rates on hold, but prepared to hike if needed

Sweden's central bank kept interest rates unchanged on Thursday but warned that monetary policy could be tightened if inflation doesn't come down quite enough.

The Riksbank announced that it was maintaining its key policy rate at 4.0%, surprising analysts who had expected a rise to 4.25%.

However, it stressed that policymakers were prepared to raise rates further "if the prospects for inflation deteriorate".

The central bank acknowledged that inflation was falling in Sweden, roughly in line with its forecasts, with monetary policy dampening demand in the economy and easing pricing pressures.

According to the Riksbank's estimate, he annual rate of consumer price inflation is expected to average 8.6% throughout 2023, falling to 4.4% in 2024 and 2.4% in 2025, but isn't predicted to sustainably fall below the 2% target until 2026 when it hits 1.9%.

"In recent months, consumer prices have increased at a slower pace than before, and companies no longer plan to raise prices as much. The labour market is weakening from a strong starting point," the Riksbank said.

"However, inflation is still too high and there are still risks that it will not fall fast enough going forward. Prices for services are increasing at a rapid pace and contributing significantly to total inflation. In addition, the krona is still unjustifiably weak, which is holding up the rate of price increase for goods."