European Economic Comment "Riksbank: On hold at 1.75%, vigilant, but not..."

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European Economic Comment "Riksbank: On hold at 1.75%, vigilant, but not..."

ed in the

press release. The inflation forecast was updated in line with our expectations (Figure 1Riksbankforecasts),

with downward revisions this year on the back of recent undershoots but upward

revisions further out. Both the 2026 and 2027 inflation forecasts are below target (partly

due to tax cuts), with the overshoot in 2028 explained by the expiration of the

temporary food VAT cut (effective April 2026 to December 2027). The 2029 Q2 end-

points are back at the 2% target. The GDP revisions were more negative than we had

expected, with a 0.3pp downward revision in both 2026 (to 1.9%) and 2027 (to 2.0%)

and only a 0.1pp increase in 2028 (to 1.7%). Nonetheless, the Riksbank still expects a

pickup in growth relative to last year and a continuation of the recovery into 2027.

Riksbank outlook: On hold at 1.75%, hike not before 2027

We think the next Riksbank move will be a rate hike, but not in 2026 as indicated by

market pricing, and rather only in June 2027 - still slightly earlier than when the new

Riksbank rate path indicates a full 25bp hike (Figure 13Riksbankpolicyrateprojections). The main reason is that inflation

will likely continue to undershoot for the rest of the year, partly due to tax cuts (food,

electricity, fuel), but also because of last year's SEK appreciation and subdued underlying

price pressures. Readings below 1% in both headline and core are possible until Q4 this

year, at which point we expect a modest pickup. In addition, the economic recovery

remains tepid and the labour market has not turned around yet, limiting the risk of

second-round inflation effects from the energy price shock.

Earlier hikes would likely require SEK weakness amid rapid Fed and ECB hikes