The Riksbank is anticipated to maintain its policy rate at 1.75% for the seventh consecutive meeting, according to Brown Brothers Harriman’s (BBH) Elias Haddad, as inflation in Sweden continues to run above the central bank’s projections [1]. Specifically, Sweden's CPIF inflation in July was recorded at 0.7% year-over-year, compared to the Riksbank’s forecast of 0.5%, while CPIF excluding energy stood at 0.6% year-over-year versus the central bank’s projection of 0.2% [1].
Despite these higher-than-expected inflation readings, overall inflation remains well below the Riksbank’s 2% target, which BBH notes sets a high threshold for any hawkish repricing by the central bank [1]. As a result, the Swedish Krona (SEK) faces a policy headwind, with the market perceiving limited scope for near-term tightening [1].
Market pricing, as reflected in the swaps curve, indicates that investors fully expect a 25 basis point rate hike to 2.00% in December, suggesting that while the Riksbank is likely to keep the door open for future hikes, immediate action is not anticipated [1].
CONCLUSION
The Riksbank is expected to hold rates steady for now, despite inflation readings above its projections. With inflation still below target, the likelihood of a near-term rate hike remains low, presenting a headwind for the Swedish Krona.