MNI RIKSBANK WATCH: Holds In Jan As Uncertainty Mounts

The Riksbank left its policy rate on hold at 1.75% at its January meeting and stuck with guidance that "the rate is expected to remain at this level for some time to come" but warned of significant uncertainty around its central projection for low inflation and a stable policy rate.

"Geopolitical developments have been dramatic at the beginning of 2026, not least due to the U.S. administration’s foreign policy conduct" the Riksbank's Executive Board said, adding that and the lasting consequences were unclear and that "uncertainty regarding the outlook for inflation and economic activity has increased."

In its policy assessment the Swedish central bank dropped its previous line that it expected the currency to strengthen, instead stating that it anticipated that it "will have a gradually declining effect on inflation going forward, as the krona appreciation is expected to wane.”

In December the Riksbank had said it expected that "the krona will appreciate somewhat further in the period ahead.”

KRONA OUTLOOK

In other parts of its monetary assessment the Riksbank reaffirmed its view that inflation was firmly on the downward path, with the December forecast projection showing it at just 0.9% this year on the target CPIF measure, far below the 2% target.   A temporary reduction in VAT on food from April and subdued domestic price pressures, in part reflecting recent krona strength, were expected to weigh on near-term inflation. (See MNI INTERVIEW: Riksbank's Thedeen Sees Policy Rate Stimulative)

"Although the Swedish economy has so far proved resilient to unfavourable events abroad so far, sentiment in the household and corporate sectors can
deteriorate rapidly," the Riksbank said.

The krona is "notoriously difficult to predict," while the VAT food cut could hit inflation and stimulate demand. Fiscal policy is set to support economic activity.

The growth outlook has continued to firm with a fairly strong recovery expected this year.

"New information indicates that household consumption is continuing to rise and that economic developments as a whole were somewhat stronger than expected in the fourth quarter of 2025," the Riksbank said.