Interest rates

Sweden Interest Rates | What will interest rates be in 2023?

In Sweden, the main interest rate is called the Riksbank policy rate. Photo: Andrey Shcherbukhin/Shutterstock

Interest rates in Sweden come back on an upward trajectory, hitting a decade high as inflation back to levels seen in the early 1990s.

After one of the most aggressive one-off rate hikes in the developed world this year, the inflation rate has continued to rise. Sweden central bankthe Sveriges Riksbank, could respond, but how?

What are interest rates and how are they set in Sweden?

Interest rate are effectively a charge on the loans. They define the interest rate applied to the loan and the rate of return on the loan. They are used by central banks as an essential lever for Monetary Policy affect the levels of demand in an economy.

When the economy is too hot and prices are rising too quickly, central banks raise the interest rate. This affects interest rates on everything from business loans to mortgages.

This makes borrowing more expensive and saving more attractive, reducing demand in the economy and lowering inflation.

When the economy is in a deflationary phase – usually during a recession – central banks reduce interest rates to stimulate demand in the economy.

In Sweden, the main interest rate is called the Riksbank key rate and is set by the Riksbank.

The bank sets Sweden’s interest rate with a 2% inflation rate target in mind – 2% is considered slow and stable enough to stimulate demand while avoiding a cost of living crisis .

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History of Swedish interest rates

Swedish interest rates, 2012-2022

Sweden’s interest rate history has generally followed that set by the Eurozone European Central Bank (ECB), its larger neighboring economic zone.

In 2015, the Riksbank brought interest rates below zero in an effort to stimulate demand enough to bring inflation back to its 2% target, breaking with its tendency to follow the ECB. The policy rate stood at 0.5% between 2016 and 2019.

The Cato Institute considered that this had a limited impact. Swedish rates have generally been more responsive to economic movements in the wider Eurozone, which also experienced low rates of inflation over the period.

The country cut rates to zero in 2020 after the first wave of the Covid-19 pandemic passed. In May 2022, it raised the policy rate by 25 basis points (basis points). Another 50 basis points in July took the rate to 0.75%.

Rates are currently back at their highest level in more than a decade after the Riksbank raised its key rate by 100 bps at 1.75% in September. It was Sweden’s biggest interest rate hike in nearly three decades – a stark warning that prices were too high and more needed to be done.

“Inflation is too high. It undermines the purchasing power of households and complicates the planning of their finances for both businesses and households. Monetary policy must now be tightened further to bring inflation back to target announced the Sveriges Riksbank alongside the rate hike.

Main factors determining the interest rate in Sweden

The interest rate in Sweden is shaped by runaway inflation.

The country’s main indicator of rising prices, the fixed interest rate consumer price index (CPIF), reached 9.7% in September. That was nearly five times the Riksbank’s target rate – the highest level since 1991, and up from 9% in August.

The country has been hit by its dependence on Russian gas, which has been in short supply since Russia invaded Ukraine.

Sweden imported 8% of its crude oil and 30% of its natural gas from Russia, Library of Congress Sweden reported. The congress noted that Swedish imports of Russian energy fell by 59% between March 2021 and March 2022, putting pressure on prices.

The country is also being forced to meet high levels of domestic demand, the Riksbank said. The Swedes spent the proceeds of huge economic stimulus triggered across the country to deal with the impacts of the pandemic.

“The fact that consumer prices in Sweden have become so high is due not only to the effects from abroad but also to the good economic activity in Sweden,” the Riksbank said in its September monetary policy report.

“The risk is still great that inflation will take root and it is extremely important that monetary policy acts to ensure that inflation falls back and stabilizes around the 2% target within a reasonable time frame.”

Sweden’s new government is making its own contribution to Swedish interest rate news, announcing its first budget in early November. The right-wing government planned to cut the fuel tax and increase spending by $3.7 billion on defence, welfare and the police, Reuters reported.

Higher spending could have other adverse effects on the Swedish economy, which could replicate the crisis UK markets experienced under the previous government led by Liz Truss.

Exchange rate United States dollar Swedish krona

The Swedish currency, the Swedish krona (SEK), has struggled to maintain strength against the U.S. dollar (USD) this year as it battles high inflation-driven volatility. Year-to-date, the krone is down 15% against the greenback (YTD). Investors fled to the refuge dollar. The US Federal Reserve (fed) has set up a falcon monetary policy to control inflation.

A weakening currency makes imports more expensive and boosts exports when domestic demand is already too high.

The Riksbank’s late but aggressive 100 basis point hike helped the krone recover slightly, rising 5.7% from September lows.

Interest rate forecasts in Sweden for 2022 and beyond

Most analysts believe that Swedish interest rates have not yet bottomed out.

In September, Nordea predict that Sweden’s interest rate could reach 2.5% by the end of 2022 and stay there in 2023 and 2024:

“The expected compensation for households and businesses is supposed to limit the effect of energy prices on inflation. Global transportation costs and commodity prices have fallen this year.

“Domestic demand is expected to weaken, which will also ease the pressure on service prices. Inflation will therefore fall next year and the Riksbank should keep its key rate unchanged.

In August, before the last 100 basis point hike, Skandinaviska Enskilda Banken AB (SEB) expected the key rate to reach 2.25% in April 2023, before falling by an unspecified amount in 2024.

During this time, the Organisation for Economic Co-operation and Development (OECD) expect long-term interest rates to reach 2.4% by the end of 2023.

A Swedish interest rate forecast by TradeEconomy predicted that the rate would increase to 2.25% by the end of 2022, and another 3% in 2023, before falling back to 2.5% in 2024.

Note that analysts’ predictions may be wrong. Forecasts should not replace your own research. Always do your own due diligence before trading. And never invest or trade money you can’t afford to lose.


What is the current interest rate in Sweden?

As of November 10, the Sveriges Riksbank key rate was 1.75%, which is a 10-year high.

Will interest rates go up or down in 2023 in Sweden?

No one can say for sure. At the time of writing (10 November), analysts expected interest rates to rise in Sweden in 2023, as the central bank continues to battle high inflation for decades.

However, these predictions could be wrong. Always do your own research before making any investment decision. Remember to never trade more money than you can afford to lose.

Where will interest rates be in 5 years in Sweden?

Although there is no forecast for Swedish interest rates five years from now, analysts generally expect the rate to rise in 2023 before falling back in 2024. Although their forecasts may be inaccurate.

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