While the Fed and the Bank of England have chosen to maintain the status quo, the fight against inflation continues and will continue in Sweden.
For a long time, the Riksbank was less in a hurry to raise its key rates than others, even though Swedish inflation reached very high levels and double-digit until April.
As the Swedish private sector (particularly households) is heavily indebted and variable rate credit dominates the leading Scandinavian economy, the central bank has tried so much to keep the cost of credit as low as possible to limit economic breakdowns.
But this caution at a time when others did not hesitate to do what was necessary to fight inflation eventually deepened the interest rate differentials that separated the Swedish krona from other major currencies. Investors broke away from the crown, and the latter collapsed, reaching nearly 12 SEK for €1, levels rarely seen against our currency.
The Riksbank considers that this undervaluation is not justified. But the reality is that even after the 0.25% increase agreed this week, the Riksbank’s primary policy rate is 4.0%. This level remains lower than that of the euro area (4.5%), but also Canada (5.0%), the UK (5.25%), and the United States (5.25% to 5.5%).
At the same time, while economies such as the US are on the verge of a soft landing (according to the Fed), the Riksbank forecasts a contraction in Swedish GDP in the coming months. However, despite this underperformance, the Riksbank points out that it still has work to do and that further hikes in key rates are expected.
Therefore, if we do not doubt Sweden’s ability to remain competitive and dynamic in the medium and long term, there is little doubt that the country will go through difficult quarters in the immediate future.