Swedish Krona: Riksbank seen keeping hike option – Commerzbank

Commerzbank's Antje Praefcke suggests the Swedish Riksbank will maintain its guidance that the policy rate may increase by year-end, even though present inflation readings are low. She cites temporary tax measures and high energy prices as factors that could increase inflation in the near future. August's inflation data did not surprise the Riksbank, as it matched their expectations.

A temporary reduction in the value-added tax on food will initially lower inflation but eventually allow it to rise once the measure ends. Energy prices, which have been high for several months and show no signs of improvement, will directly raise inflation and indirectly boost the prices of imported goods and commodities. Consequently, the Riksbank anticipates inflation rates to rise, especially from the following spring, prompting the possibility of a policy rate hike by year-end to tackle these price risks.

While a rate hike delay is conceivable, it is unlikely due to the Middle East conflict and soaring energy prices. The parliamentary elections on Sunday are not expected to significantly impact the Swedish krona; the Riksbank's focus will be on the fiscal policy shaping in the years ahead, which will only become clear in several months.

The government's profligacy before the elections is expected to foster growth prospects, further supporting the Riksbank's inclination to retain the option of an interest rate hike before the year concludes.