Hasse Eriksson: Expect more interest rate increases

Why does the Riksbank raise the policy rate?

As expected, the Riksbank raises the key interest rate by 0.25 percentage points to 2 percent. It is the first increase in over three years. Looking at the numbers, it may seem a little strange.

The Riksbank's goal is to keep inflation measured by CPIF at 2 percent. For September, the figure was 1.5 percent. So under the target. But the numbers right now are artificially low. It is a consequence of the government's previous policy of lowering the tax on energy, reducing food VAT and halving the price of public transport.

If you exclude those effects, KPIF is three percent, according to the Riksbank. So a good bit over the target.

Beneath the surface, there are signs that prices may move forward. The background is the war between the United States and Iran. Although oil deliveries through the Strait of Hormuz have approached normal levels, the price of oil remains at a high level.

"Indicators for inflationary pressure are still above normal. Companies' costs have increased as a result of large price increases for, among other things, oil products," writes the Riksbank in its monetary policy update.

Will there be more increases?

Without a doubt. The Riksbank writes in its commentary that it is likely that the key interest rate will be raised in the coming year. The next interest rate announcement will be on 16 December. Next year, February 3 will be the date for the first meeting of the year. There are many indications that there will be increases, at least on one of these dates.

Several assessors believe in at least two more increases in the future. Riksbank Governor Erik Thedéen flagged for a two and a half increase at the Riksbank's forecast in September. With one increase completed, the Riksbank remains open to one or two more increases.

How are my personal finances affected?

It is the variable mortgage rates that are primarily affected when the Riksbank acts. Those with variable interest rates – which is the majority of Swedes with mortgages – can count on an increase of around 0.25 percentage points shortly. The banks are usually quick to act after an interest rate increase. Here you can check what is happening with the costs of your loan.

Even those who are thinking of buying a new home can count on higher costs in their calculation.

What happens now?

As is usually the case, the Riksbank is flagging a number of uncertainties which, if they materialize, could lead to even more increases.

One is that the supply disruptions – mess with oil deliveries – remain. This increases the risk of inflation, according to the Riksbank. Another uncertainty is the geopolitical uncertainty. Both the war between the US and Iran and the war against Ukraine continue. To that you can add concerns about AI investments and weak government finances in some countries.

"As always, the Riksbank evaluates the inflation and economic prospects in the light of new information and adjusts monetary policy accordingly," writes the Riksbank.

In plain language, this means that the Riksbank will raise the interest rate if inflation takes off more than expected.