Sweden's economy makes a strong recovery from recession.

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Sweden's central bank on Thursday raised its benchmark interest rate by 0.25 points to 0.75 percent as the country's economy makes a strong recovery from recession.

"The Swedish economy is continuing to show strong growth," the Riksbank said in a statement explaining its decision.

"Inflationary pressures are currently low, but are expected to increase as economic activity strengthens. The repo rate needs to be raised gradually towards more normal levels to attain the inflation target of 2.0 percent and create the right conditions for stable growth in the real economy," it added.

The central bank said its forecast for how its main interest rate would develop remained the same as an estimate it gave in July, predicting that it would hike the rate to 0.9 percent by the end of the year and gradually raise it to 2.1 percent by the third quarter next year.

The Riksbank meanwhile raised its forecasts for economic growth in Sweden to 4.1 percent this year from the 3.8 percent predicted in July.

For 2011 however, the bank said it expected Sweden's gross domestic product (GDP) to grow 3.5 percent, down from its previous estimate of 3.6-percent growth.

Hiking its rate from a historic low of 0.25 percent in July, the central bank made Sweden the second western European country after Norway to raise interest rates since the beginning of the global recession which triggered rate cuts worldwide.