Riksbank stands pat in March

Policymakers hold, as expected: At its meeting on 19 March, the Riksbank paused its monetary policy loosening cycle, keeping the policy rate unchanged at 2.25%. The move had been priced in by markets and followed two consecutive 25 basis point cuts. The policy rate stands at its lowest level in over two years but remains elevated by pre-pandemic standards.

Riksbank keeps true to its word: The Riksbank noted that the outlook for inflation and economic growth remained broadly stable from its December meeting, at which it forecast maintaining the policy rate at 2.25% through 2027. Though the Bank hiked its CPIF (consumer price index with a fixed interest rate) inflation forecasts for 2025 by 0.5 percentage points to 2.5%, it sees price pressures trending toward its 2.0% target in 2026, tempered by a stronger krona, softer rises in costs for food, and stable inflation expectations. Meanwhile, policymakers adjusted their unemployment forecasts, expecting a slower-than-previously-anticipated recovery in the labor market.

Some panelists may now expect no further hikes for 2025: The Riksbank stated that it would continue to stand pat so long as the outlook for inflation and economic growth remains stable, assessing the policy rate to be neutral, at a level that matches aggregate demand and supply. That said, the Bank noted that the economic outlook is riddled with uncertainty: Geopolitical tensions, rising global trade frictions and recent European defense spending hikes could motivate a shift in its current forward guidance. In a subsequent statement, Governor Erik Thedeen stated that the Riksbank is ready to act and has “an action bias”. Our Consensus is still for an additional 25 basis point cut by year-end; our panel sees CPIF inflation hovering around the 2.0% Bank’s target overall in 2025, undershooting its forecast. However, some panelists have recently upgraded their projections in light of the Governor’s aforementioned comments. The Bank will reconvene on 7 May, with its monetary policy decision to be announced the following day.

Panelist insight: Analysts at Danske Bank commented: “We continue to expect the Riksbank to be on hold from here. […] We share the Riksbank’s assessment that the pick-up in inflation will prove transitory – long-term expectations remain well anchored spot on target at 2.0% - and we agree that the recovery in domestic demand (private consumption) is too slow. While we have unchanged as the base case, we consider it more likely that the next move is a cut rather than a hike.” ING’s Francesco Pesole and James Smith said: “Following 175bp worth of rate cuts, it looks like Sweden’s Riksbank is finally done with easing. […] There are still plenty of unknowns, not least US President Donald Trump’s tariff strategy, which we expect to heat up in April. And the extent to which higher fiscal spending across Europe will feed through to higher growth this year. That aside, we think the Riksbank will be content with keeping rates where they are for the foreseeable future.”

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