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Swedish c.bankers split over rates ahead of Feb 2023 decision

FILE PHOTO: The sign for Sweden's central bank is pictured in Stockholm

By Simon Johnson

STOCKHOLM (Reuters) - Sweden's rate-setters are increasingly divided over how much the policy rate will need to rise in the coming months after a three-quarter percentage point hike at end-November, the minutes of the Riksbank's most recent policy meeting showed on Monday.

The central bank has jacked up rates to 2.50% from 0% in February after a surge in prices far greater than it had anticipated. However, there are now hopes that inflation is close to its peak.

Several rate setters said that rate hikes could soon end, which would be in line with the Riksbank's forecast that the policy rate will peak at just below 3% next year.

"The new phase in the monetary policy strategy reflects our belief and hope that we are close to a level for the policy rate that will not need to be that much higher," Deputy Governor Per Jansson said.

He was supported by deputy governors Anna Breman and Martin Floden.

However, other rate setters took a different tack. Deputy Governor Henry Ohlsson, for example said that with inflation still close to 30-year-highs, it was "very clear to me that monetary policy needs to become much less expansionary".

"Risks are tilted towards a 50 basis point rate hike," Nordea economist Torbjorn Isaksson said about February's meeting. Swedbank said it expected a 50 basis point hike in February.

DEBATE

The split reflects a wider debate among central banks about how much tightening is needed - and how much consumers and businesses can cope with amid an economic slowdown.

The U.S. Federal Reserve may soon scale back the pace of its interest rate rises after four consecutive 75 basis point hikes.

In Europe, some at the European Central Bank argue there is a risk of inflation becoming entrenched. Others are worried aggressive hikes will just deepen the downturn.

In Sweden, uncertainty is high.

In October, falling electricity prices brought down headline inflation figures, but core prices jumped by more than the Riksbank - and markets - had expected, hitting 7.9%.

Inflation outcomes for November and December are due before the Riksbank's next policy meeting.

In addition, Governor Stefan Ingves, broadly a hawk, will leave the bank at the end of the year.

Current FSA head Erik Thedeen, who takes over in January, has not indicated where he stands on policy. The February meeting will also be the first at which new Deputy Governor Aino Bunge votes.

Markets see Sweden's policy rate hitting around 3.25% in the second half of next year.

(Reporting by Stockholm Newsroom, editing by Stine Jacobsen and Niklas Pollard; Editing by Toby Chopra)