The strong growth in Q2 increases the likelihood that the Riksbank will raise interest rates from their present supper-low degree of -0.5% – the second lowest in the world after Switzerland.
A rise in interest rates is likely as inflows of foreign capital raise, to push up the value of the Krona. Higher interest rates make a country a more attractive destination for investors to park their money and vice versa for low prices.
The minutes from the July Riksbank policy meeting also imply a marginal but possibly crucial shift in posture towards hiking interest rates following Ricksbank member Henry Ohlsson, joined sole hawk Martin Floden in floating the notion of a change in policy, in a marked changed from prior encounters when Floden had stood .
Higher inflation from rising food and electricity prices after the drought and also wildefires ravaged the countryside could also lead to higher interest rates expectancy.
Hydro-electricity dams dried up and reduced the supply of power from the many plants of the country, whilst wildfires ravaged the countryside, ravaging crops and leading to a significant agricultural crisis, which is likely to increase food inflation.
As a consequence of the damage caused by natural disasters, though expectations are beaten by growth Q3 growth might undershoot them at precisely the same time, and this may make the Riksbank attentive.