Sweden's Riksbank holds policy unchanged, sees first rate hike at end 2024

STOCKHOLM, Nov 25 (Reuters) - Sweden's central bank left policy unchanged on Thursday, arguing that currently above-target inflation would ease back next year and pencilling in its first rate hike since the COVID-19 pandemic struck for the end of 2024.

The benchmark repo rate has been at zero since the start of 2020 and the Riksbank has been in no hurry to tighten policy despite a rapid recovery from the effects of the pandemic.

"If inflation is to be close to the target in the longer term, cost pressures need to increase more permanently. This requires continued support from monetary policy," the central bank said in a statement.

The Riksbank also stuck to plans to maintain its balance sheet through next year before allowing the portfolio to decrease gradually.

"While the Bank is in no rush to raise the repo rate, the insertion of a rate hike into the end of its three-year projection period means it is no longer as decidedly dovish," David Oxley, Senior European Economist at Capital Economics, said in a note.

The Swedish crown strengthened temporarily after the decision was published.

INFLATION CONUNDRUM

Central bankers around the world are grappling with the question of whether the currently high pace of inflation is a temporary effect of economies restarting after the pandemic, or more long-lasting, and when they should begin to rein in ultra-loose monetary policy.

The Bank of England, among others, has signalled policy tightening ahead while several smaller central banks, from Norway to South Korea, have already hiked rates. read more

In Sweden, headline inflation reached its fastest pace since the autumn of 2008 in October, but the Riksbank - which has already started tapering its asset purchase programme - has been convinced that price pressure is temporary.

The central bank said it expected inflation to fall back next year.

"The most important reason is that energy prices are not expected to rise as quickly next year," it said. "Another reason why inflation will slow down is that the bottlenecks will be resolved when growth enters a calmer phase."

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