Sweden's Riksbank to hike rates by half percentage-point on Thursday

STOCKHOLM (Reuters) - Sweden's central bank is likely to hike its policy rate by half a percentage point this week, with potentially one more quarter point hike in April to come, a poll of analysts by Reuters indicated on Monday.

Economists were almost unanimous in seeing a hike to 3.0% at Thursday's policy meeting, pointing to both inflation at a 30-year high and the need to keep pace with the European Central Bank, which raised its key rate by 50 basis points last week.

The median forecast is then for one more hike in April before rates start to fall at the start of 2024, though analysts were almost equally divided over whether the peak would be 3.0% or 3.25%.

Sweden's economy is expected to shrink this year, while the high proportion of floating-rate mortgages in Sweden means interest rate hikes have a quicker and bigger impact than in most of the rest of Europe.

"We think inflationary pressures will ease sooner in Sweden than elsewhere," Capital Economics said. "With this in mind, we are pencilling in a first rate cut in January 2024."

House prices have already dropped around 15% as a result of consecutive hikes by the Riksbank last year, which have taken the policy rate to 2.5% from zero in early 2022.

Consumers have cut back on spending, and housing investment is expected to tank. GDP is expected to contract as much as 2% this year, similar to the downturn during the COVID-19 pandemic.

Still, upside risks remain.

The ECB has promised another 50 basis point hike in March and some rate-setters have said the ECB will not stop there.

Sweden's crown is trading around levels last seen during the global financial crisis in the years after 2008, and not following in the ECB's footsteps would undermining the currency further.

Rate-setters also remain worried that inflation could become entrenched. Three analysts saw the benchmark rate rising to 3.50%.

"Inflation has continued to rise and the Riksbank will need to tighten monetary policy further before it reaches the interest rate peak, which we estimate will be 3.50%," banking group DNB said.

The meeting is the first under the stewardship of new Riksbank governor Erik Thedeen, with Deputy Governor Aino Bunge also voting for the first time.

(Reporting by Simon Johnson; Editing by Kevin Liffey)