Riksbank: Limited hiking cycle versus ECB – Nomura

Nomura strategists expect Sweden’s central bank, the Riksbank to keep its policy rate on hold for the rest of 2026 and deliver only one 25 bp hike to 2.00% in early 2027. They argue Sweden’s softer inflation, below-trend Gross Domestic Product (GDP) and lower neutral rate justify a path below the European Central Bank (ECB), despite a historically higher Swedish policy rate.

Swedish rates seen lagging Euro area

"We expect the Riksbank to leave its policy rate on hold for the rest of the year and raise it once to 2.00% in early 2027, as inflation picks up towards target and accelerating GDP growth creates price pressures."

"However, we do not expect the Riksbank to match the ECB’s rate rises this year. Therefore, a key question is: given the tight relationship between the two policy rates, are our forecasts for the two economies consistent?"

"So why do we project the Riksbank’s policy rate to be below the ECB’s across our forecast horizon if in the past it was higher? The key reasons include: The Riksbank’s neutral rate estimate for Sweden has fallen in recent years, but it has not moved by as much in the euro area using the ECB’s own estimate.”"

"However, Sweden also faced weaker economic growth than the euro area in 2023, as the Riksbank rapidly raised rates, perhaps suggesting monetary policy had a more immediate impact on aggregate demand. This rapid impact on household cash flow from raising the policy rate may make the Riksbank more hesitant to raise rates in response to the current inflationary pressures, if it has concerns about a weak economic backdrop (despite a strong Q2 2026, the recent economic recovery has been shaky and the unemployment rate is high). "

"For the Riksbank, Norges Bank and ECB, we chart developments in neutral policy rate estimates over time, using ranges suggested by the central banks’ research. The generally higher neutral rate estimates for the Riksbank and Norges Bank, relative to the ECB's, help explain why these Scandinavian central banks typically have seen higher rates."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)