MNI RIKSBANK WATCH: On Hold, Inflation Undershoot Risks Ease

The Riksbank is expected to leave its policy rate unchanged at 1.75% at its March meeting, as the impact on energy prices of the Iran war hampers the case for further easing.

Policymakers had previously signalled that the policy rate was likely to trough at 1.75% and be held there for a prolonged period, though the possibility of a substantial undershoot of the inflation target had prompted market speculation of another cut. The near-term inflationary effects of the current energy shock are likely to take some of the air out of the cut debate.

Updated forecasts in the March Monetary Policy Report could again show the policy rate flatlining at 1.75% throughout this year. The forecast for growth is likely to be cut and the inflation forecast raised, though the extent of these revisions is uncertain. The central bank will have been racing against the clock to factor in the uncertain effects of the war into its forecasts, with energy prices swinging wildly and any call on the duration of the conflict extremely difficult to make.  

The possibility of prolonged higher inflation due to the energy shock could well be addressed via scenario analysis.

DECEMBER FORECASTS

The Riksbank's most recent forecast, from the December Monetary Policy Report, was for a rebound in economic activity this year, with growth of 2.9%, and with inflation on the target measure, consumer prices with a fixed interest rate (CPIF), falling to 0.9%.

CPIF inflation fell to 2.0% on the year in January from 2.1% the previous month, and core inflation was just 1.7%. The economy also stumbled at the start of the year, contracting 1.1% month-on-month in January. 

In the January minutes, Deputy Governor Per Jansson said the krona's appreciation since the beginning of 2025, geopolitical uncertainty and softer demand were "fueling the risks of inflationary pressures being too weak,” and added that it could not be ruled that he would vote for a rate cut on March 18.

Governor Erik Thedeen was fairly even handed about the policy outlook at the January meeting, taking the view that krona appreciation may have run its course. This Thursday’s press conference will give him his first opportunity to reflect on how the war may have changed the outlook. (See MNI INTERVIEW: Swedish Funds Raise Krona Equity Holdings and MNI INTERVIEW: Not Clear Krona Undervalued - Riksbank Head )

The meeting will be the first for new Deputy Governor Goran Hjelm, who joins from the Fiscal Policy Council and he will take the board up to its full complement of five.