Swedish Krona: Hawkish Riksbank stance holds – Commerzbank

Antje Praefcke, a Commerzbank analyst, anticipates the Bank of Sweden (Riksbank) to keep its policy rate at 1.75% and maintain a cautious, hawkish tone similar to their statement from June. Although inflation rates are currently below 1%, Praefcke argues that temporary fiscal effects are causing the current low readings and expect them to diminish, with inflation expected to rise again. Consequently, today's decision is considered neutral for the Swedish Krona (SEK).

The Riksbank is widely anticipated to keep its policy rate unchanged at 1.75% during the meeting today. Praefcke shares this expectation and also forecasts that the statement will resemble the June announcement, which had a slightly more hawkish tone compared to March. This hint at a potential interest rate hike in the future was previously suggested in March.

Notably, tensions in the energy markets improved temporarily due to hopes of an agreement between the US and Iran, but these expectations soon disappeared. In light of this, the Riksbank will continue to monitor inflation risks closely. As the special fiscal effects are expected to fade by year-end, inflation should rise once more, allowing the Riksbank to disregard the fact that inflation has fallen below the inflation target.

The path of interest rates suggests a slightly higher policy rate towards the end of the year and beyond, which could be raised towards the end of the year. Given that no end to the Middle East conflict or reduction in elevated energy prices is currently in sight, Praefcke expects the Riksbank to retain its hawkish stance today and wait to see how the situation unfolds. Further forecasts will be released at the end of September, and until then, the Riksbank faces no immediate pressure to act.