Riksbank review – Small hawkish adjustment
The Riksbank left the policy rate unchanged at 1.75% as widely expected and mentioned an increased probability for a hike later this year by stating that "the probability that the rate will be raised later this year has increased in relation to the assessment in March." That said, the shift towards a more hawkish stance is still less than we anticipated.
The updated policy rate path is indicating a roughly 50% probability that the policy rate will be raised ahead of year end. Whereas this is clearly more than what was signaled in the March MPR, it was below our expectations for the new rate path (we expected close to a full hike). The end-point of the trajectory was lifted slightly to 2.2%, indicating a closing in towards the mid-point of their neutral policy rate range of 1.5%-3.0%.
Erik Thedéen reiterated the same message as in the May meeting during the press conference, stating that Sweden is in a good position, but inflation developments are highly uncertain, and all else equal inflationary pressures have increased.
The main reason we see for the rate path to fall short of our expectations is that the Riksbank has a relatively soft inflation and growth forecasts (see more on next page). As for the international policy rates, the Riksbank shifted it higher as expected but also here the upward adjustment of 0.2p.p for 2026 and 0.5p.p for 2027 looks to be on the low side compared to how expectations have shifted for Federal Reserve from cuts to hikes and both ECB and Norges Bank already having delivered hikes.
It should be noted that the cut-off date for the Riksbank's forecast was 10 June, meaning that the latest US-Iran developments have not been incorporated in their forecasts.
The May minutes revealed diverging views within the board, so the minutes from the June meeting (released 24 June) will again be an interesting read to gauge the different individual opinions within the board.
Author
Danske Research Team
Danske Bank A/S
Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.
