Swedish Krona: Riksbank path a headwind for Swedish Krona – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad argues that Sweden’s benign inflation and spare capacity support an extended Riksbank hold. While the central bank projects its policy rate at 1.75% until late 2026, swaps price a more aggressive tightening path. Haddad believes market expectations can adjust lower toward the Riksbank’s guidance, leaving the Swedish Krona (SEK) under pressure.

Market hikes seen too aggressive

"Sweden May CPI is due Thursday. CPIF is expected at 1.3% y/y (Riksbank forecast: 1.6%) vs. 0.8% in April while CPIF ex-energy is projected at 0.3% y/y (Riksbank forecast: 0.9%) vs. 0.0% in April."

"Sweden’s benign inflation backdrop alongside ample spare capacity in the economy argue for an extended Riksbank hold."

"In March, the Riksbank penciled in the policy rate to remain at 1.75% until Q4 2026, followed by a first full 25bps hike to 2.00% by Q1 2028. The swaps curve is more aggressive and price in 43bps of hikes in the next twelve months."

"In our view, the swaps curve has room to adjust lower towards the Riksbank’s more subdued tightening path which remains a headwind for SEK."

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