MNI RIKSBANK WATCH: Holds, Foresees Prolonged Pause

Sweden’s Riksbank left its policy rate on hold at 1.75% at its March meeting and said that it foresaw a prolonged policy pause.

The Executive Board stated that "the rate is expected to remain at this level for some time to come," though in its central projection it assumed that the Iran war would only have moderate upward effects on inflation and moderate dampening effects on the economic recovery.

The Riksbank’s updated rate path showed the policy rate pretty much flatlining this year before edging up to 1.9% in 2027 and on up to 2.2% at the end of the three-year forecast period. That projection was unchanged from the previous quarterly round in December.

It raised its inflation forecast for the target CPIF measure to 1.5% for  2026, up from 0.9%, and the GDP forecast for this year was cut to 2.5% from 2.9% while it was nudged up for 2027 to 2.6% from 2.5%.

UPSIDE SCENARIO

Still, the Riksbank stressed elevated uncertainty, and sketched out an alternative scenario in which geopolitical events feed through to a broader and more persistent upturn in inflation forcing it to raise the policy rate, "even though economic activity in this case would be significantly lower."

It also saw a downside scenario in which the hit to demand would lead it to cut its policy rate.