Riksbank lifts rate to 2% and leaves door open to more tightening

What happened

The Riksbank pushed its key rate to 2% from 1.75% in Stockholm, a move economists had largely penciled in and the central bank's first policy change in more than a year. It is the first increase since 2023. The board backed the decision unanimously.

No fresh projections came with the interim meeting. The latest published rate path is dated Sept. 24, and officials did not release a new one in November. Those September projections put the odds of a November hike at about 65%, and Governor Erik Thedéen had strongly indicated he favored that outcome ahead of the meeting.

Why they moved and what comes next

Policymakers pointed to stronger domestic growth and higher energy costs as reasons to act, and said the existing outlook still stands: "it's likely that the policy rate will be raised further in the coming year" if inflation and activity follow their current track. Thedéen told reporters, "We have not gone into discussing individual monetary policy meetings, simply because we do not have a strong view on that." He added, "We believe that the interest-rate path still holds, and it indicates just under two additional rate increases over the coming year. That is as far as I am prepared to go in terms of forward guidance."

Earlier this year the board expected to keep rates unchanged until later 2027, a stance that has now shifted. Price pressures are seen rising near term as oil and gas shipments through the Strait of Hormuz remain constrained and Sweden's economy firms. The country had avoided the worst of Europe's Iran-war driven inflation thanks to hydro and nuclear power and fuel tax cuts. Following a tight September election, Sweden remains under a caretaker administration as coalition negotiations proceed.

Markets and forecasts

The krona slipped 0.1% to 10.9725 per euro after the announcement. Torbjörn Isaksson, chief analyst at Nordea Bank Abp, said the nod to September's path "suggests that a rate hike in December is unlikely, as it is neither signaled in the press release nor indicated in the Riksbank's September rate path." Nordea expects one more increase in February.

Bloomberg Economics' Sweden economist Selva Bahar Baziki said, "The Riksbank Executive Board has kicked off what we expect will be a short hiking cycle as price pressures build. We forecast one more move, taking the policy rate to 2.25% early 2027. Risks point to an even steeper path. Robust growth and the threat of further escalation in the Middle East could warrant a faster, or longer, tightening cycle."

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Svenska Handelsbanken AB's Tommy von Brömsen said the central bank's two-month-old path signals an additional increase during the first half of 2027, with a possibility of a third before the year is out. Nomura Plc's team led by Josie Anderson expects quarter-point moves in February and May 2027, while noting each could slip by a month.

The global backdrop and your money

Peers are tightening policy amid the Iran war. The Reserve Bank of Australia raised rates again this week, and if the Bank of England follows on Thursday as economists expect, every Group of Seven economy will have lifted rates at least once since the conflict began.

Closer to home, Sweden's finance ministry recently boosted its growth call for this year to 3%, nearly double the pace it projects for 2025, on stronger household confidence and exports. The bottom line: the Riksbank has restarted tightening as growth firms and energy keeps inflation sticky, and its current path points to the possibility of additional increases into 2027. Rate sensitive corners of your portfolio will feel that path first.

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