The world's oldest central bank delivered a holiday surprise for krona bulls on Thursday when Sweden's Riksbank raised its benchmark repo rate off the crisis-level -50 basis points to -25 bps, its first - and unexpected - rate hike in seven years. The decision, which was anticipated by only 10 of 24 analysts polled by Bloomberg, sparked a rally in the Swedish krona sending it almost 1% higher to trade at 10.26 to the euro, its biggest jump since early October.Putting the news in context, Capital Economics noted that markets were pricing in less than a 10% probability of a hike yesterday.

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Despite a raft of weak inflation data that had led most analysts to push back their rate-hike expectations until February, the central bank decided to hike in order to "maintain credibility" after five years of forecasting rate hikes that never happened. Prior to the hike, the Riksbank advised that a hike could arrive either late this year or during its February meeting. Inflation expectations now appear "established" at around the Riksbank’s 2% target, which suggests that "the need for a highly expansionary monetary policy has decreased slightly," the bank said in a statement. The bank's board, which voted 5-1 to raise rates, said the next hike would probably come during the second half of 2019. However, the upside for the krona was probably limited by the fact that the bank lowered its interest-rate forecast for next year, lowering the repo rate forecast by 11bp by end-2019 and 18bp by end-2020.

Nordea economist Torbjorn Isaksson told Bloomberg that the wording of the bank's statement "strengthens our view that the next rate hike is a long way off."Svenska Handelsbanken Chief Economist Christina Nyman declared it a "very dovish hike.”

Swedish economic activity has been robust, the bank said in its statement, ignoring a raft of weak inflation and growth data. And despite worries about a decline in global trade thanks to the Trump trade war, the Riksbank said that "the employment rate is historically high, companies are reporting major shortages of labor and cost pressures are rising," removing the need for such accommodative policy, though the bank said that policy "is still expansionary."

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Analysts from Goldman said the Riksbank's hike was "in line with our base case" and projected that the next hike won't arrive until Q3 next year, though they said risks to their forecast are "skewed to the downside:"

Today's announcements were close in line with our base case expectations. A large downside risk existed from a postponement of the first hike to February, with the added uncertainty of further delay from this. With today's decision we think the Riksbank will use the next six to nine months to assess if the domestic and global data are broadly developing in line with its base case forecast. If so, we think the Riksbank will hike in Q3 and raise the repo rate about twice or slightly more over the subsequent year. We do see risks to our modal forecast as skewed to the downside, reflecting that we also attach downside risk to our forecast of an ECB hike by late 2019. That said, we still view the market forwards as being on the low side.

As Bloomberg reminds us, one reason the Riksbank has probably been so hesitant to hike until now is that it is still getting over its last policy error, made during the European debt crisis, when it started hiking in 2011, only to do a U-turn that ultimately led it to the negative levels seen today (which is exactly what the ECB also did at the time under Trichet). New York Times editorial board member Paul Krugman infamously declared that the hike was an example of "sadomonetarism."