Riksbank holds rate, sees higher chance of hike later in 2026
The Riksbank held its policy rate unchanged at 1.75 percent at its June 16 meeting. The central bank noted increased risks of higher inflation later in 2026, driven by global uncertainties.
Policy rate steady, outlook shifts
The Riksbank's Executive Board maintained the policy rate at 1.75 percent at its June 16 meeting, a decision supported by the Monetary Policy Department.
Key developments included the Middle East situation, which saw oil prices fall to around USD 83 a barrel, and the ongoing AI expansion, driving stock markets to new record highs.
Government bond yields declined, yet market pricing suggests further rate hikes from other central banks; the ECB and Bank of Japan have already acted, while the Federal Reserve is not expected to raise rates until late 2026.
The Swedish krona recently strengthened.
Domestically, economic conditions remain somewhat weaker than normal, and inflation is below target.
However, inflationary pressures have slightly increased.
Long-term inflation expectations are firmly anchored, but the Riksbank now assesses the likelihood of a rate rise later in 2026 as higher than in the March forecast, reflecting an increased risk of inflation exceeding target.
Resilient system, persistent risks
Olof Sandstedt, Head of Financial Stability, outlined elevated risks to Sweden's financial stability, citing global uncertainties from US trade policies and the Middle East conflict.
Despite cautious optimism, uncertainty persists.
The Swedish financial system has shown resilience, with funding markets functioning well.
However, falling risk premiums and historically high asset valuations, especially for AI-related firms, could trigger sharp corrections.
These may be amplified by global vulnerabilities like high public debt and the expanding non-bank sector.
Sweden is deemed well-equipped to manage economic deterioration due to stable public finances.
Major banks are profitable, with ample capital and liquidity, good USD access, and limited exposures to the Middle East and energy.
Increased cyberattack threats necessitate enhanced operational preparedness.
Waiting game with rising stakes
The Riksbank's decision to hold rates is understandable given the conflicting signals from global markets and domestic conditions.
However, the explicit mention of a higher likelihood for a rate hike later in 2026 suggests a growing unease within the board about persistent inflationary pressures.
This cautious stance reflects a difficult balancing act, prioritizing stability while acknowledging the increasing pressure to act if global risks materialize.