Key Takeaways:
Sweden's Riksbank held its benchmark at 1.75 percent for a seventh straight meeting while keeping a rate increase on the table for later this year.
The Riksbank left its policy rate at 1.75 percent Thursday for a seventh consecutive meeting, keeping alive the chance of a hike later this year after summer inflation ran above its June forecast. The decision, which applies from 26 August, was forecast by all 19 economists surveyed by Bloomberg.
"The Executive Board assesses that it is a well-balanced policy to leave the policy rate unchanged, and that the probability of a rate increase later this year remains," the Riksbank said in a statement. Governor Erik Thedéen is scheduled to brief reporters at 11 a.m. Stockholm time.
Underlying inflation, which strips out energy and the direct effects of temporary fiscal measures, is running close to the 2 percent target, while the measured headline rate is low largely because of those fiscal measures. Growth has been stronger than the June forecast and economic sentiment has improved, but the labor market has been somewhat weaker than expected. The Riksbank's June projection assigned a 50 percent probability to a 25 basis-point hike this year.
The risk is that supply shocks from the war between the United States and Iran push underlying inflation too high. The Riksbank said it would tighten policy if the unexpectedly high summer inflation proves the start of a larger and more lasting upturn, with the next full forecast due 24 September.
A hawkish hold in a divided picture
The decision reflects a central bank weighing two competing forces. On one side, the measured inflation rate is low and unemployment is high, supporting patience. On the other, both growth and inflation have come in above the June forecast, and the war in the Middle East keeps the risk of an inflation overshoot alive. The picture is not clear-cut, the Riksbank acknowledged: companies' pricing plans have been subdued, disruptions in global supply chains have declined, and the labor market has softened.
The oil price and certain other commodity prices have come down since the spring, and there are signs that markets and companies have adapted to the conflict. But with no peace agreement between Washington and Tehran, the underlying cause of the supply disruptions remains.
At 1.75 percent, Sweden's benchmark is the lowest in the European Union, a level the Riksbank has defended through seven straight meetings. The June projection of a 50 percent chance of a 25 basis-point hike this year remains the reference point for how the board sees the balance of risks, and the bank repeated that the probability of an increase later this year persists.
What happens next
The minutes of the Executive Board's meeting will be published 25 August, offering a fuller read on how members weighed the competing signals. The next Monetary Policy Report, which will contain fresh forecasts, follows 24 September. If the summer's inflation surprise proves temporary, the Riksbank can hold through year-end; if it marks the start of a sustained upturn, a hike before the end of 2026 becomes more likely.
For the krona and Swedish bond yields, the hawkish hold keeps the door open to tighter policy without committing to it, leaving the currency and rates sensitive to each inflation print and to developments in the Middle East. The Riksbank said the outlook for the economy remains largely unchanged, but that developments call for vigilance.
This article is for informational purposes only and does not constitute investment advice.
