(Bloomberg) -- Board members of Sweden’s Riksbank signaled they are ready to deploy another key rate hike and plan to keep a restrictive monetary policy for longer in the battle with stubbornly high inflation.
“I can envisage further tightening being necessary so that we can be reasonably sure that inflation will continue down to our target of 2%,” Governor Erik Thedeen said in minutes from the central bank’s latest rate-setting meeting. “This need not be at the next meeting; further tightening can come at a later stage.”
At the Sept. 20 gathering, the central bank’s executive board decided to raise its benchmark rate by a quarter point to 4%, as prices on services continue rising at a rapid clip and the Swedish currency has traded at record lows against the euro, making imported goods more expensive.
Read More: Riksbank Hikes Swedish Rate With Door Kept Open to Act Again
Deputy Governor Anna Breman also hinted at a potential pause before further tightening, something that Swedbank AB’s analysts Jesper Hansson, Carl Nilsson and Glenn Nielsen said was “interesting given that the rate path distributed nine of the ten remaining basis points on the November meeting.” They see the Swedish policymakers raising their key rate by a quarter point to 4.25% in November.
The rate decision aligned the Swedish central bank with global peers in sending a signal that while borrowing costs may not rise much further, they are likely to remain at current levels for an extended period of time.
Deputy Governor Per Jansson also signaled support for more aggressive policy, in line with the governor’s stance, pointing at “far too high” inflationary pressures. Remarks from his colleagues Aino Bunge and Martin Floden appeared somewhat more accommodative.
The weakness of the krona also prompted the central bank to launch operations to hedge its currency reserves to avoid losses in case the currency strengthens. While the Riksbank has said the move doesn’t have any monetary policy purpose, some analysts have viewed it as “covert currency intervention.” After the bank started selling euros and dollars last week, the krona has strengthened notably.
The krona continues to be in focus, with Danske Bank A/S data showing it was mentioned 43 times in the minutes versus 44 in June. At the same time, the currency is 3.5% stronger than the Riksbank’s trade-weighted forecast for the fourth quarter, “which alleviate some of the fears,” Danske’s economist Stefan Mellin added.
--With assistance from Charles Daly, Love Liman, Rafaela Lindeberg, Anton Wilen and Christopher Jungstedt.
(Updates with analysts, more comments from fourth paragraph)
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