STOCKHOLM – The Swedish central bank raised its key rate by 25 basis point to 0.25%, on Thursday. It also indicated further tightening in advance as part of a dramatic shift in policies sparked from rising inflation.

Riksbank also stated it would allow its balance sheets to shrink in this year’s policy shift.

According to the statement, the Board expects the repo rate to rise slowly going forward. It will then fall slightly below 2 percentage points in three year’s time.”

Russia’s incursion in Ukraine, called a “special military operations”, by Moscow has increased the upward pressure on prices. Prices are already increasing due to the long-term effects of the pandemic.

The March inflation rate was 6.1%, which is well above Riksbank’s target of 2%.

The Riksbank believed that price pressures would be temporary in February and did not expect to need to raise rates before 2024.

Riksbank is expected to see at least two more rate rises in the coming year.