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.
What the desk is arguing
The desk maintains that the Riksbank will indeed raise rates by 25bps, bringing the policy rate to 2.0%—a view supported by recent communications from the central bank. Per the full note from ING, despite September's benign inflation print, officials have indicated a determination to sustain preemptive tightening measures due to a stable economic backdrop and rising energy costs.
Furthermore, although inflation metrics suggest moderation, the influence of surging energy prices could skew perceptions toward a hawkish outlook. The desk notes that key inflation measures, such as CPIF excluding energy at just 0.5%, have not deterred the Riksbank's resolve, hinting at both resilience and potential volatility in policy adjustments going forward.
Where it sits in our coverage
Currently, our consensus targets for EUR/SEK reflect a broad range largely centered around 11.00. Relevant firms include: - jpmorgan: 11.10 (Dec-26) - bofa: 11.04 (Dec-26) - db: 11.00 (Dec-26)
This perspective finds alignment with ING, which also points to the risks of further tightening due to energy pressures, but deviates slightly in its projections with a more cautious stance on future hikes. Thus, the desk’s forecast sits at the upper end of the range, emphasizing a hawkish outlook on the Riksbank's trajectory.
How other firms see it
Several firms are aligned with the Riksbank's expected upward trajectory, emphasizing the need for vigilance regarding inflation dynamics. Notably, jpmorgan and db share similar hawkish expectations, while bofa counters this view, suggesting a more tempered approach towards rate hikes.
Watching EUR/SEK will be critical, particularly as the Riksbank navigates its policy amidst external economic conditions, with implications reflective of the overall euro area’s growth metrics.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Riksbank expected to hike by 25bps despite soft inflation signals.
- 02Market expectations on rate increases have softened recently.
- 03Resilient economic indicators and energy price pressures bolster tightening bias.
- 04Current projections suggest a hawkish stance may persist into early 2024.
Market implications
Traders should closely monitor the EUR/SEK pair for volatility as the Riksbank approaches its November decision, particularly as energy price movements could further influence inflation outlooks. A sustained rates trajectory will be pivotal ahead of the January review.
Risks to this view
A significant downturn in energy prices or unexpected economic contraction could challenge the Riksbank’s tightening stance, potentially leading to dovish pivots in policy expectations. Additionally, if inflation metrics start to trend downward more sharply, it could prompt a reconsideration of rate hike plans.
Articles Riksbank to hike despite soft inflation and rallying krona Published 15:19 FX Sweden Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download We expect a 25bp hike on 4 November by the Riksbank, alongside a reiteration of the tightening bias. Inflation was softer than expected in September, but upside risks remain for prices, and a resilient economy allows policymakers to tighten pre-emptively. We have revised our EUR/SEK year-end target to 11.00 after the recent rally Francesco Pesole We expect two rate hikes in Sweden in the next few months The Riksbank announces policy on 4 November, and we are sticking to our call for a 25bp rate hike to 2.0%.
Market bets on a rate increase next week have dwindled in the past week or so, moving from 22-24bp to 15-18bp. While we don’t see a single clear trigger for this partial dovish rethink, a soft inflation print in September and SEK appreciation may have both played a role. However, both in-meeting and off-meeting commentary by Riksbank officials have been endorsing a move at this November meeting, and the rise in energy prices offsets the dovish inflation and currency market inputs, in our view.
Don’t expect an explicit commitment to further increases, but the tightening bias should remain in place. Our call remains that the Riksbank will skip December and hike again to 2.25% on 3 February. We don’t currently expect any further rate increases beyond that, but the risks are clearly on the hawkish side given the persistence of energy price inflation.
Muted inflation in September, but goods prices are picking up Swedish inflation was slightly more subdued than expected in September. CPIF came in at 1.5% year-on-year as expected, but CPIF excluding energy was just 0.5%, 0.2ppt below the Riksbank’s forecast. The softness was concentrated in food and services, with an unusually large drop in car rental prices playing a role.
But the details were not entirely dovish. Goods inflation was stronger and broad-based, with durable goods prices rising 1.1% month-on-month and annual inflation turning positive for the first time in over a year. That fits with earlier signals from producer prices and suggests higher global price pressures are starting to feed through.
We remain aligned with the Riksbank’s projections that CPIF inflation should reach 2.5% and CPIF excluding energy 1.0% in December. Further on, the outlook remains for further acceleration in core measures, with CPIF excluding energy set to pass 2.0% by the summer. Growth proved resilient again in 3Q, with GDP rising 0.4% quarter-on-quarter and 2.8% YoY.
Higher energy prices to tilt the balance towards November These inflation projections are only facing upside risks the longer energy prices remain elevated. Alongside them, the Riksbank signalled a split probability rates would be raised at either the November or December meeting. While the September inflation print and stronger krona (which we address below as a topic) may argue for a pause, the rise in energy prices is a bigger deciding factor in our view, and should tilt the balance towards a rate hike already next week.
In September, the Brent crude price projection for end-2026 was $92/bbl, against the current price of $118. European gas prices have also increased c.35% since the September meeting. New projections are only published in December, but we think the Riksbank will have to acknowledge that higher energy prices increase the risk of more persistent inflation.
On top of that, Riksbank officials have been generally hawkish-leaning in their comments in the past month. Governor Erik Thedeen said there are “strong reasons” to hike in the near term, partly due to the resilient economy. Aino Bunge and Per Jansson have both broadly endorsed that view in later comments.
Higher SEK, higher energy since last policy meeting Source: ING, Riksbank, Refinitiv "> Source: ING, Riksbank, Refinitiv Riksbank shouldn’t underestimate SEK fragility if it holds There’s no denying that the hawkish shift in September was partly due to the Swedish krona’s weakness. Since that last policy meeting, the krona has appreciated c.1.4% on a trade-weighted basis, driven by a drop in EUR/SEK. That, in turn, has been a consequence of a tightening in two-year swap rate differentials of around 20bp, mirroring a stable outlook for Riksbank tightening while ECB expectations were revised lower on the back of French-related risk.
EUR/SEK was also trading 1-2% above our short-term fair value estimates at the end of September. The subsequent rise in euro idiosyncratic risk has pushed the pair into a modest 0.5-1% undervaluation. We don’t think that is enough to justify a dovish Riksbank surprise.
Despite the recent rebound, SEK remains 4% weaker on a trade-weighted basis since the start of the year. More importantly, the hawkish Riksbank stance is itself an endogenous driver of recent SEK strength, with short-term rate differentials overwhelmingly dominant for the currency. A hold or dovish hike would trigger fresh SEK weakness.
With the energy story still negative and contingent euro idiosyncratic risk potentially abating, SEK could return to late September levels again without the Riksbank’s support. Revising our EUR/SEK target lower Our EUR/SEK year-end target has hovered around 11.10-11.15 for the past couple of months. The build-up of substantial EUR-specific risk makes a lower target an obvious adjustment.
Markets are also not fully pricing a Riksbank hike next week, with 17bp priced at the time of writing, nor a February follow-up move, with 40bp priced, which remains our baseline. Still, EUR/SEK looks a bit too weak relative to fundamentals. That points to a lingering risk premium and leaves room for upside if some France-related risk abates into year-end (our baseline).
At the same time, the external backdrop remains challenging for SEK, with oil prices still very elevated. We are revising our year-end EUR/SEK target to 11.00, close to current spot. Over the next week, however, we could see further downside exploration, with a potential break below 10.90, as a Riksbank hike may combine with some US-related risk around the midterms to support SEK, both through the rates channel and potential capital repatriation flows.
In the longer run, we still expect a gradual decline to 10.70 over the course of next year. SEK Riksbank FX 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 Muted inflation in September, but goods prices are picking up Higher energy prices to tilt the balance towards November Riksbank shouldn’t underestimate SEK fragility if it holds Revising our EUR/SEK target lower
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