Riksbank: Holds rates unchanged amid rising energy concerns – Nomura

Riksbank Expected to Hold Rates Steady Amid Inflation Uncertainty

According to Nomura economists, Sweden’s central bank is anticipated to maintain its policy rate at 1.75% during the upcoming meeting on March 19, with no adjustments projected until at least 2026. Despite recent softness in CPIF excluding energy and GDP figures, ongoing tensions in the Middle East and elevated energy costs are seen as factors that could keep inflation pressures elevated, making a near-term rate reduction improbable and delaying any potential rate increase until late 2027.

Complex Inflation Dynamics Challenge Swedish Rate Decisions

Nomura’s analysts forecast that the Riksbank will keep its policy rate unchanged at 1.75% at the March meeting. While CPIF inflation excluding energy has fallen short of expectations and GDP indicators have been underwhelming, the central bank’s Executive Board is likely to remain cautious due to inflationary risks stemming from geopolitical instability in the Middle East. As a result, the Riksbank is expected to reiterate its guidance that rates will remain at current levels for an extended period.

The central bank is also expected to express concern about the potential for higher energy prices to trigger secondary inflation effects. With the outlook for both inflation and economic growth becoming more uncertain, a cautious approach in response to the Middle East situation appears warranted. The Riksbank’s upcoming inflation projections may be revised: recent weaker-than-expected CPIF ex-energy data could prompt a slight downward adjustment, while overall CPIF forecasts might edge higher.

Beyond inflation, the Riksbank is likely to monitor how the conflict impacts demand. Heightened uncertainty could weigh on business and consumer sentiment, dampening investment and spending. Sweden’s economy is only beginning to recover after a prolonged period of sluggish or negative GDP growth in 2022 and 2023, with recent monthly data indicating declines in output for both December and January.

Looking forward, Nomura expects the policy rate to remain unchanged throughout this year, with a possible increase not anticipated until late 2027—by which time a firmer economic recovery could bring renewed inflation risks. Such a move would align the policy rate more closely with the midpoint of the Riksbank’s estimated neutral range of 1.50% to 3.00%. However, if the Middle East conflict resolves swiftly and inflation remains subdued, a rate cut could occur sooner. Conversely, a prolonged crisis could accelerate inflation and prompt an earlier rate hike.

(This article was produced with assistance from an AI tool and subsequently reviewed by an editor.)