Brown Brothers Harriman’s (BBH) Elias Haddad highlights that Sweden’s current inflation environment and economic spare capacity support the Riksbank maintaining its policy rate at 1.75% for an extended period [1]. The Riksbank’s own projections indicate the policy rate will remain at 1.75% until the fourth quarter of 2026, with the first full 25 basis point hike to 2.00% not expected until the first quarter of 2028 [1].
However, market pricing diverges from the central bank’s guidance, as the swaps curve currently anticipates a more aggressive tightening, with 43 basis points of hikes priced in over the next twelve months [1]. Haddad argues that these market expectations are too aggressive and may adjust downward to align with the Riksbank’s more subdued outlook, which would likely keep the Swedish Krona (SEK) under pressure [1].
Upcoming data releases are also in focus, with Sweden’s May CPI due on Thursday. The CPIF is expected at 1.3% year-over-year (Riksbank forecast: 1.6%) compared to 0.8% in April, while CPIF excluding energy is projected at 0.3% year-over-year (Riksbank forecast: 0.9%) versus 0.0% in April [1]. These benign inflation expectations further support the case for an extended hold by the Riksbank [1].
Overall, the combination of subdued inflation, economic slack, and the Riksbank’s cautious policy stance is seen as a headwind for the SEK, especially if market expectations for rate hikes are revised lower [1].
CONCLUSION
The Riksbank’s commitment to a prolonged hold on rates, combined with benign inflation data, suggests limited upside for the Swedish Krona in the near term. Market expectations for aggressive tightening may moderate, reinforcing downward pressure on SEK.