(Bloomberg) -- The Riksbank will probably raise its interest rate by a half point this week, staring down the mounting danger of an economic slump to act against rampant inflation. 

The decision will be the Swedish central bank’s first since 2005 without Stefan Ingves at the helm, and Erik Thedeen’s succession as governor has brought some suspense to the outcome on Thursday. Even so, all economists surveyed by Bloomberg predict a rate hike, with most anticipating a 50 basis-point move to 3%.

Officials are persisting in forceful action as they confront the krona’s drop to a fresh 14-year low against the euro this week and inflation remains stubborn despite a nine-month-long campaign of monetary tightening.

Those challenges put the Riksbank in an unenviable position of having to keep up aggression at a time when the Swedish economy may already face one of Europe’s worst economic contractions this year just as its housing market succumbs to a crash.

“The outcome is rather clear cut, given the high inflation and weak krona,” Handelsbanken chief economist Christina Nyman said in a phone interview.

Tying the hands of Riksbank officials is the policy of the central bank’s peers. With major global central banks not yet done with interest-rate increases, the Swedes see a need to keep their own benchmark higher to shore up the krona. Officials in the neighboring euro zone last week raised rates to 2.5%, and all but promised another 50 basis-point step in March. 

The decision on Thursday will be the first both for Thedeen, the former financial regulator who took office on Jan. 1, and newly installed Deputy Governor Aino Bunge. 

While their appointments mean the biggest shakeup in more than 25 years for the Riksbank’s six-member executive board, economists reckon policy is likely to stay consistent, at least at first, given the situation is much as Ingves faced.

Of the more than a dozen economists surveyed by Bloomberg, all but two expect a half-point rate increase, with the remainder predicting a smaller move to 2.75%.

Speculation on how the new officials would approach policy was heightened by emerging differences within the existing board. Minutes from November pointed to a nascent rift with the more dovish duo of Anna Breman and Martin Floden on the one side, opposed by Ingves, alongside Henry Ohlsson, indicating a preference for more forceful rate hikes.

The 59-year-old Thedeen formerly ran Sweden’s financial watchdog, overseeing a period of housing-market exuberance that’s now standing out for the speed of its unraveling. Home prices have fallen 16% since a peak last March, weighing on consumer spending and construction.

The Riksbank forecast in November that the economy will shrink by 1.2% this year, a contraction that might well turn out to be the worst in the European Union. New forecasts will be released at the decision on Thursday, and the bloc’s first official projections may be published this week too.

A reserve officer in the Swedish Navy with a love of sailing, Thedeen’s views on monetary policy aren’t currently clear. 

The main clues come from more than a decade ago, when he was part of a panel run by business daily Dagens Industri that made its own pronouncements on how the Riksbank should act. He argued for frontloading rate increases before the onset of the global financial crisis.

More recently, Thedeen criticized Riksbank bond purchases, making headlines in 2021 by saying it was about time to wind them down. The bank’s current policy is to taper by holding such debt to maturity, but there has been speculation among investors that it could resort to outright sales.

“The difficulty in matching the European Central Bank rate hikes increases the likelihood of the Riksbank speeding up the reduction of its balance sheet by selling government bonds,” Nordea senior economist Torbjorn Isaksson said in a report. “The signaling value is the key aspect of such a measure, rather than the volumes.”

Bunge started on the board Dec. 1 after a stint at pension company AMF, following previous posts at Sweden’s Finance Ministry, where she ran the financial markets department, and the Financial Supervisory Authority. A lawyer and economist with a degree from Harvard Law School, Bunge’s term will last six years.

--With assistance from Ott Ummelas.

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