Sweden: December 2025: On hold at 1.75% as expected – Baby steps with the rate path
|Overview. The Riksbank kept the policy rate unchanged at 1.75% as widely expected and the near-term rate path was unchanged as well (also expected). Towards the end of the path, there was a small upward adjustment with a new end-point in Q4 28 at 2.12%. This was less than we expected but indicates baby steps towards normalisation. Notably, the forecast for the real policy rate path is downward sloping for the forecast period, which to us indicates a rather soft stance from the Riksbank. We maintain our view that the Riksbank will hike in December 2026, followed by March 2027 to 2.25%.
Macro. The macro forecast was revised in favour of a brighter economic outlook, as expected. Domestic demand drives the recovery, and household consumption is expected to grow in step with the growth in real incomes. The labour market is strengthening, and inflation, adjusted for tax changes is expected to be close to 2% next year. Overall, the Riksbank's new forecast is close to our forecast from 3 December. The largest deviation is in the unemployment rate, where we expect the LFS unemployment rate to fall more than the Riksbank does. The reason behind this is mainly different assumptions regarding the labour force participation rate.
Fixed Income. While the rate path revision was smaller than we envisaged, the market reaction was relatively small. Notably the pricing for the May-26 and Jun-26 meetings has been reduced (which makes good sense in our view, as we argued in our preview). Further out on the FRA-curve, the SEK curve has (so far) moved in tandem with EUR and the market is still pricing almost 2x25bp hikes until the end of 2027.
With regard to the operational framework, no news was presented despite a box about Stibor and the transmission mechanism and a repetition of the message in the May Financial Stability Report* and Thedéen's speech in September**, saying the Riksbank is ".. monitoring developments closely and is considering a number of measures to encourage banks to be more active in their liquidity balancing, as the Riksbank announced earlier this year."
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