Riksbank Holds Rate, Possible Hike Later This Year

The Riksbank left its policy rate unchanged at 1.75% in August, judging that the overall economic outlook remains broadly stable despite recent surprises in growth and inflation. Both measures have been stronger than anticipated in June, while the summer’s inflation readings have raised concerns that supply disruptions linked to the Middle East conflict could generate more persistent price pressures. However, underlying inflation excluding energy and temporary fiscal effects remains close to 2%, while subdued corporate pricing plans and easing global supply-chain disruptions suggest that inflationary pressures are not yet entrenched. The central bank therefore considers the current policy stance appropriate but maintains the possibility of a rate increase later this year. It warned that a sustained acceleration in underlying inflation would prompt tighter policy.

Sweden’s central bank held its policy rate at 1.75% in June 2026 but raised the likelihood of a hike later this year, citing growing inflation risks. While inflation remains subdued, largely due to the dampening effects of fiscal policy measures, and economic activity is weak, policymakers highlighted that prolonged supply disruptions from the Middle East conflict have heightened inflationary pressures and could amplify price effects if they persist. The Riksbank’s outlook assumes oil supply will normalize soon, with prices expected to fall, limiting the pass-through to import and consumer prices. However, uncertainty remains significant. The bank revised its 2026 inflation forecast down to 0.6% (from 0.8% in March) but increased projections for 2027 to 2.7% (from 2.0%). Inflation expectations for 2028 were little-changed at 3.4%.

The Swedish Riksbank kept its key policy rate unchanged at 1.75% for a fifth consecutive meeting in May 2026, in line with expectations, saying the current policy rate provides a solid starting point for adjusting monetary policy if needed to safeguard the inflation target. Policymakers noted that the risk of the war in the Middle East leading to higher inflation has increased somewhat. However, inflation currently remains below target, and recent data have come in significantly weaker than the Riksbank’s March forecast. At the same time, economic activity remains subdued. As a result, there is room to wait for a clearer assessment of the impact of the conflict and the supply shocks associated with it. The central bank stressed that uncertainty remains high and that developments warrant close monitoring. It also warned that if the war were to have major effects on the global economy and trigger a broad and persistent rise in inflation, it could be forced to raise the policy rate.