The Swedish central bank raised its key interest rate by 0.25 percentage points to 1.75 percent on Wednesday, the sixth increase since July 2010.

The increase was expected since the central bank, the Riksbank, has signalled that it wants to raise the key rate to 2.5 percent by the beginning of 2012.

The bank said: "To stabilise inflation close to the target of two percent and to avoid resource utilisation becoming too high, the repo (key) rate needs to increase gradually towards more normal levels."

It said: "A gradually increasing repo rate may also help to slow down the growth of household borrowing."

Sweden is a member of the European Union but not of the eurozone and therefore sets its own interest rates.