MNI RIKSBANK WATCH: Rates Unchanged, 50/50 Chance Hike Or Hold

The Riksbank left its policy rate on hold and raised its quarterly rate projection, with Governor Erik Thedeen assigning a 50/50 probability to a hike or hold going forward.

The Swedish central bank's executive board discussed risks around the proposed Memorandum of Understanding between the U.S. and Iran, Governor Erik Thedeen said in an MNI interview, adding that the decision and guidance reflected the uncertainties around the putative agreement. (See MNI INTERVIEW: 50/50 Hike Chances Due To Iran Doubts-Thedeen)

The Monetary Policy Report's central projection showed Iran war-linked supply shocks pushing down on growth and up on inflation through direct and indirect effects, with the latter expected to add 0.4 percentage points at most next year to the target CPIF, which was still expected to hold below target at 1.7% in 2027 before rising to 2.8% in 2028.

The policy rate was shown edging up to 1.76% in Q3 and to 1.93% in Q2 next year, leaving the question hanging of if and when the first hike will come. Alternative scenarios showed higher and lower inflation profiles, with the latter due to stronger second round and indirect effects from the war.