Swedish Krona: Riksbank seen holding but keeping hike option – Commerzbank

Commerzbank’s Antje Praefcke expects the Riksbank to leave its policy rate at 1.75% while continuing to signal a possible hike by year-end. Despite very low current inflation, projections show price pressures rising again as temporary tax cuts expire and energy prices stay high. She sees only minor changes to guidance and today’s decision as broadly neutral for Swedish Krona (SEK).

Low inflation but tightening still signalled

"The Riksbank is also expected to keep its policy rate unchanged at 1.75% today, while continuing to signal that a rate hike is possible by the end of the year. Although August’s inflation figures showed very low price pressure, with a headline rate of +0.3% yoy and a core rate of +0.7%. "

"The halving of the value-added tax on food is one of several temporary fiscal policy measures that will initially curb inflation and then allow it to rise again once the measure expires. In addition, the appreciation of the krona in 2025 is currently having a dampening effect on prices."

"However, energy prices - which have been elevated for several months now - will, on the one hand, cause inflation to rise directly and, on the other hand, indirectly drive up the prices of imported goods and other commodities. Finally, the krona’s depreciation since the beginning of the year is also likely to be reflected in prices in the coming months."

"I therefore expect that the Riksbank will make only minor adjustments to its statements and projections today, while maintaining its restrictive stance. Overall, today’s interest rate decision is likely to be neutral for the SEK. At one point, I could have imagined a delay in the expected tightening - that is, pushing it back into next year - but given the persistently high energy prices and the associated price risks, this is now unlikely."