Riksbank holds policy rate at 1.75 percent amid war risks
The Riksbank's Executive Board held the policy rate unchanged at 1.75 percent at its May 6, 2026 meeting. The decision comes amid considerable geopolitical uncertainty and rising inflation risks.
Geopolitical uncertainty drives market caution
Robin Ahlén, Senior Market Economist, presented financial market developments since March, noting considerable geopolitical uncertainty dominated by the war in Iran.
The ceasefire between the United States and Iran has not reopened the Strait of Hormuz, keeping oil prices elevated, with futures for late 2026 reaching new highs.
Despite the fragile ceasefire, improved risk sentiment has led to equity markets rising to near-record highs, supported by profit expectations and AI optimism.
Credit spreads remain low.
Central bank policy rate expectations are closely linked to energy price inflation risks, with market rates rising due to tighter policy expectations.
Most central banks are cautious, leaving rates unchanged, though the ECB indicates a possible rate increase next month.
Market pricing points to an unchanged policy rate in the United States throughout 2026.
The Riksbank was expected to leave its policy rate unchanged at 1.75 percent at today's meeting, with market pricing indicating 2–3 rate increases by year-end.
Financial system resilient, but supply shocks loom
Olof Sandstedt, Head of Financial Stability, described elevated risks in the Swedish financial system due to global uncertainty and US trade policy.
The war in the Middle East has created dramatic developments and volatility.
While the Swedish system has remained resilient, conditions could change rapidly if the war proves more extensive, potentially leading to sharp declines in asset prices and increased volatility.
Sweden, however, is well-equipped to manage deterioration, with stable public finances and highly profitable major banks maintaining substantial capital and liquidity.
Deputy Governor Anna Seim supported the unchanged policy rate but highlighted increasing risks of higher inflation in Sweden from supply shocks.
She noted that global value chain disruptions, like high energy and transportation costs, and shortages of inputs (e.g., helium for microchips), could have far-reaching consequences, amplified by companies' increased use of indexation mechanisms, making inflation expectations more variable.