Riksbank holds again in May

Decision meets market expectations: At its meeting on 7 May, the Riksbank extended the pause in its monetary policy loosening cycle, keeping its policy rate at 2.25%. The pause had been priced in by markets and followed a cumulative 175 basis points of cuts since May 2024. As a result, the policy rate stands at its lowest level in over two years, though it remains elevated by pre-pandemic standards.

Riksbank maintains a wait-and-see approach: The Riksbank noted that global economic uncertainty has risen since Donald Trump was inaugurated in January, largely due his unveiling of tariffs, pushing the central bank to adopt a wait-and-see approach. Domestically, the Bank noted that the outlook for inflation and GDP growth looks weaker than at its March meeting—at which it forecast maintaining the policy rate at 2.25% through 2027. Still, policymakers opted to hold off on further interest rate cuts for now, preferring to wait for the effects of U.S. trade policy to fully permeate through the economy.

Policymakers to resume rate cuts: The Riksbank assessed that it is now “somewhat more probable” that price pressures undershoot the Bank’s previous forecasts, which could prompt “slight” monetary policy loosening ahead. Moreover, in a subsequent statement, Governor Erik Thedeen stated that the Riksbank has a “vague easing bias”. Accordingly, our Consensus is for the monetary authority to cut by 25 basis points by December, with most panelists expecting the move either at the Bank’s next meeting on 16 June—with its monetary policy decision to be announced the following day—or in Q3; our panel sees CPIF (consumer price index with a fixed interest rate) inflation hovering just above the 2.0% Bank’s target overall in 2025, which is below the Riksbank’s March forecast of 2.5%.

Panelist insight: SEB’s Olle Holmgren commented: “The big change concerns an assessment both by the market and many analysts that tariffs will lead to lower inflation in Europe, not higher inflation as in the Riksbank’s risk scenario. We believe that the Executive Board will agree that the risk of inflation has fallen and that the Riksbank will cut its policy rate by 25 basis points in June. We expect only one rate cut.” Jesper Hansson and Glenn Nielsen, analysts at Swedbank, were more dovish: “Core inflation is still a bit too high for the Riksbank’s comfort, but the prospect for lower inflation looks favourable, such as the recent SEK appreciation and lower commodity prices, notably on oil. Against this backdrop, the Riksbank will again focus on supporting the economy to avoid too low inflation further out by easing monetary policy. We maintain our forecast that the Riksbank will resume cutting the policy rate already at the next meeting in June, followed by a cut in September to 1.75%.”

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