MNI RIKSBANK WATCH: Expected To Hold And Show Rate Flatlining
MNI (LONDON) - The Riksbank is widely expected to leave its policy rate on hold at 2.25% at its March meeting this week, having cut by 175 basis points since May and with its previous forecasts and commentary suggesting it could have reached the end of the easing cycle.
Minutes of the previous meeting in January, which concluded with a unanimous vote for a 25bp cut, showed all five members open to the idea of at least a pause in the cutting cycle, with Governor Erik Thedeen stating that the policy rate had "probably been lowered sufficiently.” Economic and financial developments since have been two-sided.
The Swedish krona has been one of the strongest-performing developed country currencies in 2025, which should weigh against fears of import inflation, though its impact may be less marked than in previous episodes, as Deputy Governor Aino Bunge noted in an MNI interview. (See MNI INTERVIEW: Riksbank's Bunge Sees Less Krona Pass-Through, and MNI INTERVIEW: Krona A Factor In Riksbank Cut Timing - Thedeen).
EXPORT OPTIMISM
The currency's performance has been attributed by analysts in part to greater growth optimism, with the export-driven Swedish economy well placed to benefit from any pick-up in European demand on fiscal easing and the shift away from North American assets. Policymakers may feel they can worry less about the currency's response to future policy decisions.
The central bank’s future rate path is expected to show a prolonged policy pause, flatlining throughout the three-year projection.
Recent data releases have been discordant. The two most recent inflation outturns surprised to the upside, though a number of technical factors were at play, while growth in late 2024 was revised up markedly even as the Riksbank's own business survey in the first quarter of this year pointed to subdued growth ahead. Firms reported largely weak activity and predicted that the situation would only be marginally better in six months' time.
The effect of tariffs is seen by Swedish businesses as hard to predict and Thedeen is likely to stress the uncertainty of the outlook. While the central projection may be for unchanged policy, he is likely to reassert that policy could move in either direction as events unfold.