Sweden's Riksbank holds key rate at 1.75%, signals hike before year end

Sweden's central bank kept its key policy interest rate unchanged at 1.75% on Thursday, in line with market expectations, while signalling that borrowing costs will rise sooner and further than it had projected in June.

In a statement, the Riksbank said that if the outlook for inflation and economic activity holds steady, increases to the policy rate are expected to begin this year. Analysts polled ahead of the decision had unanimously expected no change at this meeting.

The central bank has grown more concerned about the prospect of rising inflation following stronger-than-expected price readings over the summer. It noted that a larger and more persistent upturn in inflation would prompt it to raise the policy rate at a faster pace than currently forecast.

Oil prices near $100 a barrel, driven by conflict in the Middle East with no resolution in sight, have added to the inflation risks. The crown has also come under pressure from a widening rate gap with the European Central Bank, which is expected to tighten again before the end of the year.

Even so, price pressures in Sweden remain subdued at present, leaving the country an outlier in Europe and giving policymakers room to wait before tightening. Norway's central bank was due to announce its own policy decision later in the day, with a narrow majority of observers expecting a hike to 4.50%.