BBH expects the Riksbank to keep its policy rate at 1.75% for a sixth straight meeting on Thursday and to push back against market pricing for a 25 bps increase by year-end. With inflation described as benign and the economy showing spare capacity, the bank’s central case is that policy remains on hold, a backdrop it associates with a weaker Swedish krona.
In the updated rate path, BBH looks for the Riksbank to continue signalling no change through Q4 2026. It also anticipates the first full 25 bps hike could be pulled forward to late 2027 from Q1 2028, while still characterising the overall stance as an extended hold.
Divergence Between Market Expectations and Central Bank Policy
With the Riksbank expected to hold its policy rate at 1.75% again this week, we see an opportunity developing. The market is still pricing in a 25 basis point hike by the end of the year, a view we believe the central bank will actively discourage. This creates a clear divergence between market expectations and likely central bank policy.
The rationale for an extended hold is supported by the latest data. Sweden’s recent CPIF inflation for May 2026 came in at 1.9%, just below the Riksbank’s 2% target, while the unemployment rate has edged up to 7.8%. With sluggish GDP growth and ample spare capacity in the economy, there is little domestic pressure for the Riksbank to tighten policy.
Currency Implications and Trade Opportunities
This outlook is a headwind for the Swedish Krona, especially against currencies like the US Dollar where the Federal Reserve is maintaining a hawkish pause. We anticipate that as the market reprices Riksbank expectations, the SEK will weaken. Derivative traders should therefore consider positioning for a higher EUR/SEK and USD/SEK in the coming weeks.
A straightforward way to express this view is through the options market. We are looking at buying call options on USD/SEK, which provides upside exposure to a weakening Krona with a defined risk. Given the Riksbank’s predictable stance, implied volatility may be relatively low, presenting an attractive entry point for such positions.
Historically, the Riksbank has maintained a dovish stance for longer than markets anticipated, such as during the 2015-2019 period. This often led to prolonged periods of SEK underperformance. We expect a similar pattern to emerge now, rewarding positions that are short the Krona.
