MNI RIKSBANK WATCH: Inflation, Guidance Suggest Hold In June

Sweden’s Riksbank is likely to leave policy on hold this week, with an inflation uptick raising questions over whether its rate path will point to another cut in August or September.

The Riksbank cut by 0.25 percentage point to 3.75% in May, with the policy choice portrayed as either a May or June cut, and the Executive Board saying that if things unfolded as expected it could cut twice more in the second half of the year. Governor Erik Thedeen has explicitly said that the hurdle to a June cut is high, and analysts are currently divided over whether the next cut is more likely in August or September.

While a firmer krona should add to disinflationary pressures, first quarter growth came in far stronger than the Riksbank expected, with GDP up 0.7% on the quarter in Q1 compared to the central bank's assumption that it would flatline. Inflation on the fixed-interest rate CPIF measure held above target at 2.3% in May and, on the core, ex-energy, measure rose to 3.0% from 2.9%, although this may prove ephemeral with hotel prices boosted by Taylor Swift concerts.

The krona has appreciated by 3.2% on a month ago on its trade-weighted KIX index, which should alleviate concerns over pipeline inflation, though policymakers will be conscious of recent volatility in foreign exchange markets fed by rapid shifts in overseas rate expectations. (See MNI INTERVIEW: Fed, ECB Cloud Riksbank Easing Outlook- Thedeen)

While the 2024 GDP forecast may be raised markedly from March’s prediction of 0.3%, faster growth this year could be offset by a reduction in the 1.9% forecast for 2025.

CPIF was forecast to dip just below the 2.0% target next year and to hit it in 2026, and, with a similar medium-term rate projection to March's and the policy rate seen nearing 2.5% three years ahead, the broad inflation profile could be little changed.