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With the Swedish Krona (SEK) moving without a clear trend against the Euro (EUR) on Monday, all eyes are now on the Riksbank’s monetary policy decision scheduled for Tuesday at 07:30 GMT. Despite inflation still slightly above expectations, slowing growth and rising unemployment are fuelling speculation about a possible cut in the key rate, currently set at 2.00%. The market remains divided. Deutsche Bank estimates the probability of an easing at just 30%, while SEB Research anticipates a 25 basis points cut, taking the rate to 1.75%, potentially followed by a further reduction by mid-2026. The dilemma is clear. The Riksbank has to decide between persistent inflation and a fragile economy, while other major central banks are beginning to close their easing cycles. Sweden’s macroeconomic fundamentals under scrutiny Sweden’s macroeconomic environment presents a mixed picture. Core inflation, as indicated by the Consumer Price Index with a Fixed interest rate (CPIF) excluding energy – the inflation reading monitored by the Riksbank – fell back to 2.9% in August, closer to the central bank’s target of 2%. However, the headline of the index surprised on the upside at 3.2%, exceeding market forecasts by 0.5 points. According to ING, these data should encourage the Riksbank to keep its interest rate unchanged, while keeping open the possibility of a final cut later in the year. On the growth front, the expected recovery remains timid. Second-quarter Gross Domestic Product (GDP) disappointed, coming 0.6 percentage points below the Riksbank’s forecast. Unemployment, at 8.4%, remains high, prompting some members of the Monetary Policy Committee to consider immediate action. As Morningstar’s Johanna Englundh points out, “persistent weakness in the labor market could tip the balance in favor of a cut, despite temporarily higher inflation”. However, positive signals are emerging. Manufacturing Purchasing Managers Indexes (PMIs) have recently reached their…

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Filed under: News - @ September 22, 2025 6:27 pm