STOCKHOLM (Reuters) – Riksbank may be underestimating inflationary pressures and may have to stick to its forecast for another rate hike in April, Riksbank Governor Erik Thedeen said on Sunday.
The central bank has raised interest rates to 3% from 0% a year ago and has yet to curb inflation at 9.4%, well above its 2% target. It raised its benchmark rate by 50 basis points in February and said it would raise again by 50 or 50 basis points in April.
“It could be that the inflation process is worse than we thought,” Erik Thedeen told SVT television.
Swedish inflation surged in February. While headline inflation was 9.4%, in line with the Riksbank’s forecast, underlying price pressures (excluding volatile energy prices) jumped to 9.3% year-on-year, up from 8.7% in the previous month and above the Riksbank’s forecast of 8.0% .
Some economists have urged the Riksbank to pause its rate hike cycle, arguing that higher rates could damage the rate-sensitive Swedish economy and, in the worst case, trigger a financial crisis.
However, Thedeen said the main case remains an April rate hike of 50 or 50 basis points, adding that since Inflation outcomes since the February monetary policy decision have been worse than expected.
“Inflation will come down soon in our forecast. The problem is it has been in our forecast 2022 , but it hasn’t happened yet,” Thedeen said.
The Riksbank will announce its next monetary policy decision in April 50.