Riksbank preview: Going up, going gently

The Riksbank is likely to tighten gradually, raising rates to 2.00% in November, pausing in December and reaching 2.25% in February as inflation risks persist but domestic pressures remain contained.

• The Riksbank is widely expected to raise its policy rate by 25 basis points to 2.00% on 4 November, with no new rate path or forecasts at the interim meeting.
• Its September rate path implied up to a 40% probability of a 2.25% rate at the first meeting next year, while the authors expect a peak of 2.25% versus around 2.40% in the Riksbank’s path by end-2027.
• Swedish inflation has been below the Riksbank’s forecast, but the SEK has depreciated 10% in trade-weighted terms, energy prices have risen and temporary tax cuts are being reversed, creating upside risks for 2027 inflation.
• Domestic cost pressures are limited: wage agreements are expected to settle just below 3%, long-term inflation expectations remain anchored at 2%, and Volvo Cars’ announced cutbacks highlight competitiveness concerns.
• Households are exposed to variable mortgage rates, but their debt-to-income ratio has fallen by 25 percentage points over five years and they appear to have adjusted to the current 1.75% policy rate.

Takeaway: The authors favour gradual tightening to 2.25%, with restraint warranted by French fiscal turmoil, lower ECB expectations and mortgage-sensitive households, while energy prices, inflation and the vulnerable SEK could force further hikes.