Sweden lifts rates to 3%, sees rise in spring, to start bond sales in April

Sweden's central bank lifted its benchmark policy rate to by 0.5 percentage points to 3% on Thursday and said a further rise was likely in the spring as it also announced a government bond sale from April to reduce asset holdings at a faster pace.

The bank on Thursday said inflation is "far too high and has continued to rise", but a global economic slowdown combined with the recent sharp downturn in energy prices, was expected to contribute to a "clear downturn in inflation going forward".

"As in other countries, economic activity was high in Sweden at the beginning of last year and the employment rate rose to a historically high level. Towards the end of the year, however, demand fell clearly and the downturn looks likely to continue this year," the Riksbank said in a statement.

"Moreover, if the krona continues to be weak, it will be considerably more difficult for the Riksbank to sustainably return inflation to the target. In the current situation, a stronger krona would be desirable."

The bank's executive board also decided to reduce asset holdings at a faster pace, by selling until further notice nominal and real government bonds with longer maturities at a nominal value of SEK 3bn and SEK 0.5bn respectively per month, starting in April.

It added that it was not planning to sell its holding of non-government bonds and had also decided to offer larger volumes of Riksbank Certificates, corresponding to the entire liquidity surplus in the banking system, in weekly monetary policy operations.

Reporting by Frank Prenesti for Sharecast.com