Sweden Interest Rate

Central Bank once again holds policy rate in May

Fifth straight hold anticipated by markets: On 7 May, the Riksbank decided to leave the policy rate unchanged at 1.75%, mirroring its prior four decisions. The extended hold followed a cumulative 225 basis points of cuts from May 2024 to October 2025 and aligned with market expectations.

Softer-than-expected inflation and economic activity drive the hold: The Riksbank highlighted growing risks stemming from the war in the Middle East. Nevertheless, the Bank noted that inflation remains below the 2% target and has recently come in under its forecasts. Furthermore, the Bank pointed to weaker-than-expected economic activity data as a further reason for leaving rates on hold until a clearer picture of the war’s effects on the Swedish economy emerges.

Policy outlook: The Bank noted that rate hikes could become necessary if a protracted conflict causes a persistent upturn in inflation. All panelists except one forecast rates on hold at the 16 June meeting, but the panel is split regarding year-end levels, with some foreseeing no change and others a 25 basis point hike.

Panelist insight: According to Nomura analysts: “We continue to expect no change in the Riskbank’s policy rate this year, as weak inflation is balanced by upside risks from the global energy price shock. However, we think a fall back in energy prices in the near future would create the risk of a policy rate cut this year, especially in light of April’s very low inflation print.” In contrast, Goldman Sachs’ Katya Vashkinskaya said: “We continue to expect the Riksbank to stay on hold at the upcoming meetings, and see them starting to raise the policy rate in December this year to 2.25% in 2027. We, however, think that the Executive Board will need to see evidence of the energy shock starting to generate broader and more persistent inflationary pressures before warranting earlier tightening, and see a later start of the normalisation as possible.”

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