Riksbank Seen Holding Rates, Keeping Hawkish Bias

Key Moments

Riksbank Seen Leaving Policy Rate Unchanged

Commerzbank strategist Antje Praefcke anticipates that Sweden’s central bank, the Riksbank, will keep its key interest rate at 1.75% at the upcoming decision. She notes that this outcome is “widely expected” and confirms she aligns with that view.

Praefcke also expects the accompanying communication to remain in line with the central bank’s message from June, which she characterizes as somewhat more hawkish compared with the statement in March. That earlier communication suggested a slightly higher chance of a rate increase later in the year.

June Statement’s Hawkish Nuance

Highlighting the Riksbank’s prior guidance, Praefcke points to the Executive Board’s earlier assessment regarding the policy stance:

“The Executive Board assesses that it is well-balanced to leave the policy rate unchanged at 1.75% now, but the probability that the rate will be raised later this year has increased in relation to the assessment in March.”

She expects the tone of the latest statement to echo this message, indicating that a further tightening later in the year remains on the table.

Inflation Dynamics and Fiscal Effects

According to Praefcke, inflation indicators in Sweden have fallen to below 1%. She attributes this in part to specific fiscal measures that are currently weighing on inflation readings. In her view, these influences are temporary and should gradually dissipate toward the end of the year.

Praefcke argues that, as these special fiscal effects diminish, inflation is likely to rise again. Against this backdrop, she believes the Riksbank can “confidently look through” the current undershoot of its inflation target and its tolerance band.

Energy Market Uncertainty and Geopolitical Risks

Praefcke recalls that expectations of a potential agreement between the US and Iran had previously eased tensions in energy markets, but emphasizes that this optimism faded quickly. In light of this, she expects the Riksbank to stay alert to possible inflationary pressures linked to energy prices.

“Some time ago, the prospect of an agreement between the US and Iran had eased tensions in the energy markets. However, this hope faded quickly. The Riksbank will therefore remain vigilant regarding inflation risks.”

She further notes that there is currently no lasting relief in sight regarding the Middle East conflict, while energy prices remain elevated. This backdrop supports her view that the central bank will maintain a hawkish bias.

Policy Path and Outlook for SEK

Praefcke observes that the Riksbank’s current interest rate path already factors in a marginally higher policy rate toward the end of the year and beyond:

“The interest rate path prices in a slightly higher policy rate toward the end of the year and beyond, which could be raised toward the end of the year.”

She expects the central bank to keep its stance firmly hawkish for now and to wait for additional developments before considering any adjustment. The next set of forecasts is scheduled to be released at the end of September, and Praefcke judges that the Riksbank is under no immediate pressure to change course before then.

Overall, she characterizes the anticipated decision as neutral for the Swedish Krona (SEK), suggesting that a steady policy rate combined with a hawkish tone is largely in line with prevailing expectations.

Summary of Key Policy Signals