Riksbank holds fire in June

At its meeting on 26 June, the Riksbank paused its loosening cycle and kept the policy rate unchanged at 3.75%. The hold, which came on the heels of the first interest cut in eight years in May, had been priced in by markets.

The key domestic factors influencing the Riksbank's hold included the fact that inflation with a fixed interest rate (CPIF), which has continued to fall and is now close to the 2.0% target—in line with the Bank’s projections. Moreover, core inflation has largely eased more than anticipated in recent months. These factors, along with moderate wage increases and inflation expectations, suggest that the economic conditions for the Bank to reach its inflation target in the medium term are promising.

The Riksbank provided a more dovish forward guidance, saying that if inflation prospects do not change, it may cut the policy rate by two or three times in H2—instead of twice as cited in its May meeting. However, the Bank also notes that the prospects for inflation and economic activity remain uncertain. The next meeting is scheduled for 19 August, with the decision to be announced the following day. Over half of our panelists see three 25 basis point reductions in H2, with most of the rest expecting two such cuts.

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