Sweden’s Riksbank kept its policy rate unchanged at 1.75% and offered no hawkish guidance, in contrast with Norges Bank. The bank is expected to stay on hold until late in the year while inflation remains subdued, with government measures introduced after the outbreak of the Ukraine war dampening near-term price pressures.
Temporary Government Measures and Price Impacts
Since April, VAT on food has been temporarily cut to 6% from 12%, and consumer price data indicate the reduction was passed through almost one-for-one. Fuel measures followed, with pump prices reduced in May by 1 krona per litre for petrol and 0.4 kronor per litre for diesel, then cut again in July by a further 3 kronor per litre.
Inflation Outlook and Market Expectations
The Riksbank expects inflation to pick up in spring as these effects fade; without the temporary measures, inflation is around 2%, supporting the case for a year-end hike, while markets are pricing nearly 120bp of tightening over the next 12 months.
