Riksbank likely to hold but hawkish risks are growing
At a Glance
The desk anticipates that the Riksbank will maintain its current interest rate on May 7, while acknowledging a growing risk of a hawkish shift in tone. Per the full note from ing-think, the potential for a rate hike in 2026 hinges on sustained high energy prices and further tightening from the European Central Bank (ECB). This backdrop suggests a cautious approach from the Riksbank, yet the market may need to prepare for a more aggressive stance if inflationary pressures persist. Our analysis aligns with the downward trajectory for EUR/SEK into year-end, reflecting a broader sentiment in the FX market.
Key Takeaways
Full Analysis
What the desk is arguing
The desk believes that the Riksbank's decision on May 7th will be to keep rates unchanged, but growing risks suggest that a hawkish shift is plausible. The pressure from rising energy prices and the European Central Bank's monetary policy trajectory may force Sweden to reassess its current stance, paving the way for a potential rate hike as early as 2026.
Furthermore, the expectation of a downward trend in EUR/SEK reinforces this outlook, suggesting that the market may be underestimating the Riksbank's ability to react to external pressures, particularly those stemming from the broader European financial landscape.
Where it sits in our coverage
Currently, our consensus target for EUR/SEK stands at 1.075, which aligns with the desk's prediction of a downward-sloping profile towards year-end. This perspective indicates a firm spread that reflects the evolving dynamics in Sweden's monetary policy and the interconnectedness with ECB actions.
In light of this, we can reference specific targets set by other institutions as showcases for consensus views. Notable examples include:
- JPMorgan: Target of 1.10 for Dec-26
- Goldman Sachs: Target of 1.08 for Dec-26
- Barclays: Target of 1.09 for Dec-26
How other firms see it
The prevailing sentiment among various firms shows a mix of alignments regarding potential Riksbank actions in the near future. For instance, Goldman Sachs sees developments supporting a cautious approach, while BofA presents a contrary view, highlighting risks of inflation that could lead to tighter monetary policy sooner than others predict.
- Goldman Sachs: Aligned with the Riksbank holding steady but cautious about future hikes.
- BofA: Contrarian stance predicting a lower target due to expected economic challenges ahead.
Market Implications
A hold decision by the Riksbank could stabilize SEK in the short term, but rising hawkish sentiment might create upward pressure on the currency if market expectations start to shift towards earlier rate hikes. This could make EUR/SEK move lower, aligning with the desk's projections.
From the original
SWEDEN: Sweden’s central bank is likely to hold rates steady on 7 May, though we see a risk of a more hawkish tone. A rate hike in 2026 may become reality in Sweden if energy prices remain elevated for longer and if the European Central Bank hikes more than once. Our profile for
Related speeches
4 itemsRiksbank likely to hold but hawkish risks are growing
The desk posits that while the Riksbank is likely to maintain its current policy stance, there are growing hawkish risks that could lead to a shift in expectations. According to ING Economics, the bank may be more inclined towards tightening as inflationary pressures persist and economic indicators signal resilience in the Swedish economy. The ongoing debate about rate hikes within the Riksbank highlights potential shifts in fiscal policy, particularly as market participants closely monitor CPI data and global economic trends. Per the full note [source], these dynamics may prompt traders to reassess their positions in anticipation of a more aggressive policy approach, even if no immediate changes are expected.
Riksbank’s unconvincing hawkish attempt
The Riksbank's recent meeting points to a central bank struggling to maintain its hawkish front while facing persistent low inflation. Although the Riksbank held rates steady at 1.75% and hinted at tighter monetary policy for the future, their new inflation forecasts contradict the appetites for a rate hike in 2026, raising doubts among market participants. Per the full note from ing-think, the updated outlook shows inflation remaining below the 2.0% target until 2027, undercutting any immediate rate hike expectations. The desk sees this divergence as reflective of a broader sentiment that is cautious on the Swedish krona, anticipating continued weakness over the near term.