Riksbank’s unconvincing hawkish attempt
At a Glance
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.
Key Takeaways
Full Analysis
What the desk is arguing
The Riksbank's decision to maintain rates while delivering a hawkish tone appears more rhetorical than substantive, with market expectations for a 2026 rate hike now seeming too optimistic. The Riksbank's projections show core inflation remaining below 2.0% until at least early 2027, undermining the premise for any hikes this year. Per the full note from ing-think, inflation is expected to hover under 1.0% in the second half of this year.
These macroeconomic indicators suggest that the Riksbank is trapped, attempting to sound hawkish without the necessary economic backdrop to support it. The market's skepticism is further illustrated by only planning for rate hikes in a high inflation scenario that requires high energy prices—arguably an unlikely scenario in the current climate.
Where it sits in our coverage
The desk adopts a cautious stance on the Swedish krona, reflecting our analysis that does not anticipate rate hikes this year. Current consensus targets for the SEK/USD pair indicate a range around 1.075, with some divergence in expectations:
This call aligns with jpmorgan's higher expectations while contrasting with bofa's more bearish outlook, positioning the desk at the upper bound of the spread.
How other firms see it
Aligned firms, such as jpmorgan, maintain a more optimistic view for the krona, forecasting a stronger performance based on potential future inflationary developments. In contrast, bofa holds a markedly lower target, reflecting a belief in persistent economic weakness and a lack of impetus for the Riksbank to hike rates soon.
The outlook for the EUR/SEK exchange rate remains particularly relevant as it echoes underlying sentiments regarding the Riksbank's position. Furthermore, investor focus on broader regional inflation trends will be key as markets digest the implications of Riksbank's projections.
Market Implications
Traders should watch closely for the EUR/SEK pair as it may respond adversely to Riksbank's dovish projections. Additionally, keep an eye on inflation data releases to gauge shifts in market sentiment regarding future Riksbank policy.
From the original
Older quick take Quick take 10:55 Sweden Riksbank’s unconvincing hawkish attempt Sweden’s central bank tried to sound more hawkish as it held rates today, but new inflation and rate projections are at odds with market bets on a 2026 hike. Inflation is low and expected to re
Related speeches
4 itemsRiksbank preview: Low inflation limits hawkish scope
The desk anticipates that the Riksbank will maintain a wait-and-see approach due to persistently low inflation, which limits the central bank's capacity to adopt a hawkish stance. Per the full note from ing-think, while a unanimous hold is expected on June 17, Riksbank Governor Erik Thedeen may still signal a cautious posture regarding future rate hikes. Inflation figures remain subdued, with headline CPIF at 1.5% and core CPIF at just 0.5%, compelling the Riksbank to prioritize stability over aggressive tightening, despite market pricing suggesting a 23 basis points increase by year-end. Risks to the Swedish Krona (SEK) could stem from any overt hawkish signals that may emerge in the accompanying statements or projections, which are unlikely to meet heightened expectations suggested by market curve pricing.
Riksbank to hike despite soft inflation and rallying krona
The Riksbank's anticipated 25bps rate hike on November 4 aligns with its ongoing tightening bias, despite recent soft inflation and a strengthening krona. Per the full note from ING, inflation readings have been weaker than forecast, yet macro conditions—particularly energy price pressures—support further monetary tightening. This move could signify the Riksbank's strategic intent to pre-emptively combat inflationary risks stemming from a robust economy. Notably, amidst fluctuating market expectations, the current sentiment is shifting; swaps suggest diminishing prospects for the hike, now at 15-18bps, compared to earlier expectations of 22-24bps. The desk observes that the Riksbank's commitment to maintain a tightening stance may be more relevant than the immediate downturn in inflation metrics. This outlook will be crucial for traders, especially leading into year-end positioning and January assessments.