Commerzbank’s Antje Praefcke expects the Riksbank to keep its policy rate at 1.75% this week and signal no near-term changes, with a first hike only possible late in the year. With inflation projected to fall below target and war-related risks dominating, the March meeting is seen offering little impetus for SEK, which remains driven by market risk aversion.

Policy on hold as war risks dominate

"The Riksbank’s Monetary Policy Committee will therefore keep the policy rate at 1.75% on Thursday and will likely continue to signal that no adjustments are planned for the time being and that a first rate hike could come at the end of the year."

"Given the expected increase in growth, it anticipates that the policy rate could rise again by the end of 2026 or early 2027."

"However, since neither the Riksbank nor any other central bank knows how the Iran conflict will unfold, it is likely to focus on the risks at this meeting: the upside risks to inflation in the event of a prolonged war and the downside risks to growth."

"Since the Riksbank expects inflation rates to fall significantly over the course of the year anyway (with the headline rate below and the core rate just above 1% year-over-year), it can wait and see how the conflict and energy prices develop."

"The March meeting should not provide any major impetus for the SEK; for now, it remains at the mercy of heightened risk aversion in the market."

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