Riksbank 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.
What the desk is arguing
The desk posits that the Riksbank is likely to remain dovish, constrained by notably low inflation metrics, which undermine the likelihood of immediate rate hikes. Per the full note from ing-think, this includes both headline CPIF at 1.5% and core inflation at 0.5%, compelling the Riksbank to hold firm on interest rates during their upcoming meeting.
With inflation falling well below the targeted level, the expectation of substantial monetary tightening is unfounded. The desk observes that while the possibility of highlighting inflation risks may exist, this does not translate into a genuine readiness to raise rates imminently.
Where it sits in our coverage
The consensus target for EUR/SEK currently sits at 1.075, with firms expressing positions as follows: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
The desk's view is somewhat conservative and aligns with the lower end of the spectrum, reflecting caution amid low inflation conditions, contrasting against jpmorgan's more bullish target at 1.10.
How other firms see it
Analysis shows a divergence among firms regarding expectations for SEK positioning. jpmorgan and others anticipate minor increases, aligning with the desk's cautious stance, while bofa stands in opposition, expecting weaker recovery reflected in their lower target of 1.04.
Significantly, the movements in EUR/SEK could be influenced by the overarching actions of the ECB and the macroeconomic backdrop pertaining to inflationary pressures across Europe, as tight monetary policy could trigger a spillover effect on SEK valuations.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01The Riksbank is unlikely to adopt a hawkish stance due to low inflation.
- 02Current CPIF inflation is at 1.5% for headline and 0.5% for core.
- 03Market pricing suggests 23 basis points of tightening by year-end, potentially unrealistic.
- 04A hold on June 17 is expected with no imminent rate hikes.
Market implications
Traders should pay close attention to the EUR/SEK pair, particularly around the June 17 Riksbank decision, as this could confirm or challenge current market expectations of tight monetary policy. A failure to align with tightening pricing could lead to a depreciation in SEK, while unexpected hawkish signals might stabilize or even strengthen it against the Euro.
Risks to this view
Should inflationary pressures rise unexpectedly, driving the Riksbank to pivot towards tightening sooner than anticipated, this could lead to a rapid appreciation of the SEK. Furthermore, any unfavorable shifts in the ECB's stance, particularly regarding European inflation forecasts, could adversely impact SEK as well.
Articles Riksbank preview: Low inflation limits hawkish scope 13:08 FX Sweden Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Sweden’s central bank will struggle to replicate the ECB’s hawkishness given stubbornly low inflation. We expect a hold on 17 June. While policymakers may try to keep markets leaning hawkish, inflation and rate projections could fall short of tightening expectations.
We expect no hikes from the Riksbank this year, but EUR/SEK could still fall in 2H Francesco Pesole Riksbank Governor Erik Thedeen Markets are fully expecting a hold by the Riksbank on 17 June, and consensus is also unanimous. The question is whether policymakers will give any hints that justify the 23bp of tightening priced into the SEK curve by year-end. The determinants will be the tone of the statement, new rate projections and new inflation forecasts.
We see a greater risk that projections will fail to match hawkish pricing this week rather than exceed it. Still, policymakers should make sure to highlight inflation risks and their readiness to act in the statement; this could help limit any negative impact on the SEK on decision day. Inflation too low to consider hikes We don’t see much room for the Riksbank to turn hawkish in the statement as both headline (1.5%) and core (0.5%) CPIF inflation have remained very muted.
We expect a reiteration of the wait-and-see approach on rates. At the same time, we don’t think there will be explicit pushback against rate hike expectations, and Governor Eric Thedeen will retain some optionality on a future rate increase. Similar to the European Central Bank, concerns are centred around the de-anchoring of inflation expectations.
It therefore has an incentive to keep markets leaning hawkish, particularly given European leaders’ words of caution over the timing of the Strait of Hormuz reopening. Thedeen could also stress the currency factor again: since the ECB and other central banks are tightening, pressure on the krona may build and generate imported inflation. Riksbank overestimated CPIF, despite higher oil prices Source: ING, Riksbank, Refinitiv "> Source: ING, Riksbank, Refinitiv No upward revisions in projections We don’t expect upward revisions in the central CPIF inflation forecast.
March’s projections overestimated CPIF for March and April despite oil prices being higher than the Riksbank had forecast. Accordingly, we expect roughly unchanged rate projections for 2026, signalling no hike. We could see a small upward revision in 2027, with the first hike being brought forward to the first half of next year and introducing some probability of another hike in the second half.
Our calls for 2H26: No Riksbank hikes, EUR/SEK slow decline Our view remains that the Riksbank won’t hike rates this year. Our inflation estimates suggest CPIF will remain well below the 2% target, growth should soften below 2.0% year-on-year in the second half of 2026, and the September election also argues against bold hawkish moves. The trigger for a hike without an inflation jump could be a sharp weakening of the krona, which is not what we expect, especially considering the recent softening in oil prices.
We have revised EUR/SEK numbers slightly higher on policy divergence, but still target some depreciation in the second half, driven by Swedish growth outperformance relative to the eurozone and new flows of capital repatriation to Sweden. Our year-end target is 10.70. Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives.
The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Author Francesco Pesole FX Strategist Francesco is an FX Strategist and has been with the firm since May 2019. His main focus is on the G10 space and, in particular, on European and commodity currencies.
He began his career at Credit… In this article Inflation too low to consider hikes No upward revisions in projections Our calls for 2H26: No Riksbank hikes, EUR/SEK slow decline
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