MNI RIKSBANK WATCH: Hold Expected As Focus On Impact Of War

The Riksbank is widely expected to leave its policy rate on hold at 1.75% at its May 7 meeting, but focus will be on whether it repeats its language that rates will stay at "this level for some time to come,” or indicates more concern over the inflationary impact of higher energy prices and the Iran war.

The evidence so far suggests that inflationary pressures in Sweden remain weak. April CPIF rose 0.8% year-on-year, and fell 0.01% excluding energy, significantly undershooting the Bank's expected changes of 1.5% and 0.7%. While value-added tax on food was halved to 6% this month, the CPIF forecast error was largely ascribed to a downside surprise in non-food components.

The latest economic survey showed a slight downtick in household consumer confidence, although such data has in recent times not correlated as well with subsequent consumer behaviour as it had previously.

The Bank's policy rate has been maintained at 1.75% since September 2025, a level which Deputy Governor Anna Seim reiterated was "slightly expansionary, close-to-neutral" at a speech in Umea in April.

MILDLY ACCOMMODATIVE

This mildly accommodative stance implies there would be little cost to a rate hike to pre-empt any inflationary impulse from the conflict in the Middle East.

After its last decision to hold rates, Governor Erik Thedeen told MNI that a lesson from the Ukraine shock was that if it is necessary to hike rates it is better to do so quickly. (See MNI INTERVIEW: No Hike Delay If Shock Lasts-Riksbank's Thedeen)

The MPC's June meeting will come with a monetary policy report containing new forecasts that could provide a more comprehensive explanation for a change in rates, potentially allowing the Bank to opt for a hawkish hold this week.

Market pricing implies 30 basis points of tightening by year-end, a sharp fall from the 60bp implied at the end of last week, though there is little consensus on the timing of any hike.