Sweden raises rates for the first time since 2023

What happened

Sweden's central bank, the Riksbank, raised its policy rate by a quarter point to 2% on 4 November, from 1.75%. It was the first increase since September 2023. The bank said stronger economic activity and higher costs from supply disruptions are pushing inflation up, and that inflation is expected to keep rising. "It is likely that the policy rate will be raised further in the coming year," it said.

Why several central banks are raising rates at once

The war involving Iran and the disruption around the Strait of Hormuz have raised the cost of energy, shipping and many raw materials for every country that imports them. That pushes up prices first through fuel and heating, and then through anything that has to be produced or transported. A central bank cannot lower those world prices. What it can try to stop is the second round: firms raising other prices and workers seeking higher pay to make up for it, which would make inflation last.

That is why, this week alone, the Reserve Bank of Australia raised its rate to 4.85% and the Riksbank to 2%, and why markets expect the Bank of England to raise its rate on 5 November.

Why the levels differ so much

Sweden's rate, at 2%, is far below Australia's 4.85%. Each central bank starts from its own position: Sweden cut rates sharply in 2024 and 2025 as inflation fell, while Australia kept rates higher for longer. What matters for the economy is not the level alone but the rate after inflation, and how it compares with what each bank considers neutral.

Where it sits in the chain

This is Link 2, the central bank's reaction to inflation (Link 1). In Sweden, where many mortgages are linked to short-term rates, the effect reaches households fairly quickly; banks expect mortgage rates to rise by 0.25 to 0.5 points over the next year or so, The Local reported.

What to watch

• The Bank of England's decision on 5 November.
• Sweden's inflation figures, and the Riksbank's next forecasts.
• Whether the fall in oil prices this week lasts, easing the pressure.