MNI RIKSBANK WATCH: Holds In June, Sees Chance Of Three Cuts In H2

The Riksbank left its policy rate on hold at 3.75% in June, as was widely expected, but stated that it could cut two or three times in the second half of the year, in a dovish shift from its previous guidance for two cuts.

The detailed rate projection supported the view that a cut in August is highly likely but that it is a close call whether there will be two or three cuts in H2. The rate path showed only gradual easing over the three-year forecast, with the policy rate down to just over 2.5% by the first half of 2027.

At the press conference, Governor Erik Thedeen stuck to the line that future rate cuts would be data dependent without shedding light on whether the Bank was likely to cut in both August and September, or at only one of those meetings.

While other advanced economy central banks have tended to be more cautious in setting off on the rate-cutting path, the Riksbank highlighted that transmission mechanisms are faster in Sweden than in the U.S. and elsewhere in Europe, as households predominantly have short-term fixed or variable rate loans. The upshot is that the previous policy tightening fed through quickly, hitting the real economy, while rate hikes elsewhere have had much longer lags.

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The krona's recent strength should help dampen inflation but Thedeen was wary about the factors behind its appreciation, saying only that responsible monetary policy and stabilisation of economic activity should support the currency going forward.

The Monetary Policy Report showed inflation on the target CPI measure at 2.0% this year and just below target at 1.8% in 2025 and 1.9% in 2026, both 0.1 percentage point below the previous forecasts.

The MPR contained detailed analysis of the bank's balance sheet. The Riksbank is currently engaged in active quantitative tightening and its asset holdings should fall towards zero by end 2026, based on redemptions and the assumption that government bonds will be sold at the current pace of SEK6.5 billion per month.

A decision on the final, stable shape of the balance sheet has yet to be taken, with the board stating that it "plans to return to the question of what comprises a suitable level for its asset holdings in the long term and how such a portfolio should be composed" later this year. Central bank reserves should total SEK375 billion by end 2026 if the Bank continues on its current QT path, it said.