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Sweden Monetary Policy June 2023

Sweden: Riksbank slows tightening pace; delivers 25 basis point hike at June meeting

At its 28 June meeting, the Riksbank slowed the pace of its tightening cycle and delivered a 25 basis point increase, bringing the policy rate to 3.75%—the highest level since November 2008—effective from 5 July. The move, which markets had priced in, came on the heels of April’s 50 basis point hike. The Riksbank also announced it would increase the pace at which it reduces its asset holdings: It will sell SEK 5 billion per month instead of SEK 3.5 billion.

The hike was motivated by still-high price pressures. The Bank noted that consumer price inflation with a fixed interest rate (CPIF) continued to decline in April and May—more than initially anticipated by the Bank. However, inflation stripped of energy prices is overshooting the Bank’s expectations and receding slower than expected due to a weaker krona and still-robust domestic demand. Consequently, the Riksbank deemed further policy tightening necessary in order to bring inflation back to its 2.0% target. The Riksbank sees CPIF averaging above target until 2025; 2023 inflation expectations were unchanged at 5.9% on average.

Lastly, regarding activity, the Bank now sees a smaller 0.5% GDP contraction in 2023, instead of the 0.7% decline forecast in April.

With regard to forward guidance, the Bank stated it would likely raise the rate at least once more this year, either at its next meeting set for 20 September or the following in November. The Riksbank also hinted that the policy rate is likely to remain in contractionary territory for a “relatively long period of time”. Half of our panelists’ views align with the Riksbank’s guidance for one more hike this year; they see the rate ending the year at 4.00%.

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