Commerzbank’s Antje Praefcke reports that the Riksbank left its policy rate at 1.75% and maintained a restrictive stance, still seeing a hike later this year as likely. Riksbank is ready to tighten further if inflation proves more persistent, with decisions linked to Middle East conflict developments, though the latest move is seen as neutral for the Swedish Krona (SEK).

Policy rate on hold but guidance hawkish

“As expected, the Riksbank left its policy rate at 1.75% yesterday. It maintained its restrictive stance and still considers an interest rate hike later this year to be likely. The Riksbank is even prepared to take further tightening measures: If the unexpectedly high inflation during the summer were to be the start of a larger and more lasting upturn in inflation, the Riksbank would adjust its monetary policy in a tighter direction.”

“Both growth and inflation have been higher than was forecast in June, and there is still a risk of underlying inflation becoming too high in the wake of the supply shocks.”

“When and by how much the Riksbank will raise the policy rate will depend on developments in the Middle East conflict, which it identifies as the primary and most significant source of uncertainty. By the time of its next meeting in late September, the Riksbank will have more information available to help it decide when the time might be right for a first rate hike.”

“The interest rate decision was in line with market expectations, so it should have a neutral impact on the SEK. Furthermore, a change in interest rate expectations has only a minor impact on the SEK, as my colleague Michael explained this week in an FX Hotspot.”