Sweden's central bank left borrowing costs unchanged at 1.75%, still the lowest policy rate in the European Union. The decision - anticipated unanimously by the 18 economists polled by Bloomberg - was paired with a clear hint that policy will likely tighten this year. As Governor Erik Thedéen's team put it, "the policy rate should be raised more going forward than projected in the June forecast, for inflation to stabilize around 2%."
Policymakers said that, provided the picture for prices and economic activity does not shift, hikes will begin before year end. Back in August, they put the odds of a 25 basis point increase in 2026 at 50%. The updated rate path struck markets as tougher than anticipated. Claes Måhlén, chief strategist at Svenska Handelsbanken AB, called it "much more hawkish than expected" and said it "indicates a November rate hike is now the Riksbank's base case."
Growth returned in the second quarter. The rebound got a lift from pre election cuts to taxes on food and fuel that supported household spending, alongside low credit costs. The bank also flagged risks that price pressures could run hotter, citing the ongoing war involving Iran and Europe's constrained energy supplies.
"There are still risks that inflation may be higher than in the forecast. As the war is continuing, the fundamental reason for the supply shocks also remains," it said, adding that oil, electricity and fuel prices have risen, the krona has weakened, and supply shocks can have bigger effects when demand is stronger.
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Following the announcement, the krona rose roughly 0.4% versus the euro, touching an intraday peak of 11.2454. Still, the currency remains close to its lowest marks over the past year-plus, roughly 11.300, as investors bet the Riksbank will move after the European Central Bank on rate increases. The move came the same day as updates from the Swiss and Norwegian central banks and after both the ECB and the Federal Reserve had tightened policy recently.
The Riksbank nudged up its growth call for next year to 2.2% and lifted 2026 to 2.6% from 1.9%, while saying this year's expansion should be the strongest since 2021. Translation: activity looks firmer and inflation risks have not disappeared, so higher rates sooner is now the leaning. If you own rate sensitive assets or rely on borrowing costs, this is the backdrop to watch.
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