Stockholm, Jun 30 (IANS): Sweden's central bank announced a 25 basis point hike of its benchmark interest rate to 3.75 per cent -- a level not seen since 2008.

This is the seventh consecutive rate hike by the Riksbank since May last year, reports Xinhua news agency.

Before this round of interest rate hikes, the policy rate in Sweden had been at zero or sub-zero for more than seven years.

Another increase is also likely to come before the end of the year, the Riksbank said in a statement on Thursday.

Inflation in the country stood at 9.7 per cent in May, according to Statistics Sweden.

Although it is falling, the rate is still "far too high", the bank said.

The unexpected rapid rise in service prices, which may reflect demand pressures in parts of the Swedish economy, is the main reason for the high inflation.

The weak krona is also contributing to keeping inflation up, the bank added.

"The high inflation is being felt by households with small margins in particular, but is also problematic for the economy as a whole. It is therefore of the utmost importance that inflation falls back to the target of 2 per cent within a reasonable period of time," the Riksbank said in the statement.

In the bank's latest forecast, inflation is expected to remain substantially above the target, at 8.9 per cent this year and 4.3 per cent in 2024, before reaching 2.3 per cent in 2025 and 1.9 per cent in 2026.

The Swedish economy is expected to shrink by 0.5 per cent this year, stay level in 2024, and only grow slightly by 1.8 per cent in 2025.