Riksbank holds, but less comfortably dovish

The Riksbank left the policy rate unchanged at 1.75% on Wednesday, in line with expectations, but the accompanying message was less dovish than before.

Policymakers still see the current policy setting as well-balanced and have kept the formal rate path unchanged relative to December. At the same time, they made clear that the war in the Middle East has sharply increased uncertainty around both inflation and growth. In practice, that leaves the Bank on hold for now, but no longer leaning as clearly towards easier policy.

The notable shift was in risk balance, not the decision itself. The Riksbank pointed to higher energy prices and a weaker krona likely lifting CPIF inflation soon, with some pass-through to other prices. While growth was downgraded only slightly, the domestic recovery remains on broadly solid ground.

New forecasts place 2026 CPIF inflation at 1.5% (up from 0.9%) and GDP at 2.5% (down from 2.9%), making the earlier dovish stance tougher to justify.

What matters most for markets is that the Riksbank has clearly revived two-way policy risk. It signalled that a broader and more persistent rise in inflation could require hikes even if activity weakens, while a larger demand shock combined with softer inflation could still justify cuts. The updated oil assumption also matters. The Bank’s forecast framework now incorporates a sharp near-term rise in Brent linked to the Middle East conflict, but futures still imply that prices ease back over time. That supports a higher near-term inflation profile without forcing an immediate hawkish shift. Our base case remains that rates stay unchanged this year, but the skew has shifted. Before the Iran shock, the Board looked more comfortable discussing downside inflation risks. That is no longer the case.

For SEK, that should offer some near-term support, though not enough on its own to trigger a decisive break lower in EURSEK.

A central bank that is no longer entertaining easier policy is mildly krona-positive at the margin, particularly if markets had leaned too far towards a dovish interpretation. Sweden remains exposed to global risk sentiment, oil volatility and external demand shocks, so the broader conclusion changes only modestly. The Riksbank is still on hold, but today’s message makes it harder to argue for renewed SEK weakness on domestic policy grounds alone.

Author:

Barry van der Laan MBA, Senior FX Market Strategist

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