NextFin News - Sweden’s Riksbank is poised to pivot toward a more restrictive monetary stance by the end of the year, as a new survey of economists indicates a rate hike is likely in the fourth quarter of 2026. The shift, reported by Bloomberg on Friday, marks a definitive end to the era of easing that saw the Swedish central bank slash borrowing costs throughout 2025 to support a flagging economy.
The survey of 22 economists shows a growing consensus that the Riksbank will raise its key policy rate from the current three-year low of 1.75%. While the central bank held rates steady during its most recent meeting in March, the latest data suggests that persistent inflationary pressures and a stabilizing labor market are forcing a reassessment of the "lower-for-longer" narrative. The median forecast now points to a 25-basis-point increase in the final three months of 2026, a timeline that has accelerated significantly since the start of the year.
Knut Hallberg, a senior economist at Swedbank who has long maintained a cautious but data-dependent outlook on Nordic monetary policy, noted that the Riksbank’s window for inaction is closing. Hallberg, known for his focus on domestic wage growth and housing market stability, argues that the central bank cannot afford to fall behind the curve as the European Central Bank also signals a move toward tightening. His view, while influential, is not yet a universal certainty; some market participants remain skeptical that the Swedish economy is robust enough to withstand higher borrowing costs without triggering a fresh downturn in the property sector.
The shift in expectations is largely driven by a rebound in service-sector inflation and a weaker-than-expected krona, which has increased the cost of imports. According to Bloomberg, the Riksbank’s own projections from March had suggested a more gradual path, but the acceleration in global commodity prices and geopolitical tensions in the Middle East have introduced new volatility. The central bank’s mandate to maintain a 2% CPIF target is being tested as price growth remains stubbornly above that threshold, even as broader economic activity shows only modest signs of recovery.
However, the path to a fourth-quarter hike is far from guaranteed. A minority of analysts, including those at SEB Research, suggest that the Riksbank may choose to wait until early 2027 if consumption remains tepid. This more dovish perspective highlights the fragility of the Swedish recovery, where household debt levels remain among the highest in Europe. A premature hike could disproportionately impact mortgage holders, potentially stifling the very growth the Riksbank spent the last year trying to cultivate.
The divergence in views underscores the high stakes for Governor Erik Thedéen and the Executive Board. If they move too early, they risk a "double-dip" slowdown; if they wait too long, they risk entrenched inflation. For now, the market is leaning toward the former risk being the lesser of two evils. The upcoming June policy meeting will be the next critical junction, where updated economic forecasts will either solidify the Q4 hike thesis or provide the Riksbank with an excuse to stay on the sidelines for a few months longer.
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