Sweden’s central bank on Tuesday hiked its most important key interest rate for the fifth time since July as the country’s economic booms and its currency rallies against the euro.

Repo rate was raised by 0.25 percentage points to 1.5 percent, the Riksbank said in a statement, adding that the repo rate needs to be raised somewhat faster in the coming period. It now expected its key rate to reach 2.5 percent by the beginning of next year, up from its previous forecast of 2.2 percent.

"The Swedish economy remains strong, and the labour market situation is steadily improving. Exports and investment are increasing, and so is household consumption", the Riksbank said.

Sweden's economy has rebounded strongly following the global recession, growing nearly 7 percent year-on-year in the third quarter. But raising inflation is a threat to the economy, the Riksbank said.

"Underlying inflationary pressures are still low in Sweden, but are expected to increase as economic activity strengthens. Rising energy and commodity prices also contribute to higher inflation. To stabilise inflation close to the target of 2 per cent and to avoid resource utilisation being too high, the repo rate needs to gradually increase".

The Swedish krona, which has long been rising, hit its strongest level against the euro in 10 years after the Riksbank's announcement. Just minutes after the announcement, it cost 8.73 kronor to purchase a euro then subsequently fell to 8.77 kronor.

Analysts said the rate-hike was expected.

"This was very anticipated, that they raised it by 25 points and hiked the trajectory a bit. I think there were expectations that they would do even more," Tor Borg, a rates analyst with Swedish state-owned mortgage institute SBAB told the TT news agency.