Riksbank Holds Interest Rate Steady at 1.75%, Eyeing Potential Hike in 2027 Amid Economic Uncertainties

On November 5, 2025, the Riksbank announced it would keep Sweden's policy interest rate unchanged at 1.75%, reflecting a cautious approach amid mixed economic signals. This decision follows a gradual reduction from 4% since last spring, marking a pause after recent rate cuts aimed at supporting the economy. According to SVT Nyheter, the third quarter saw slightly stronger economic growth than anticipated, though high unemployment remains a challenge, with the labor market showing tentative signs of improvement. Inflation remains controlled but the Riksbank emphasized ongoing risks, including geopolitical tensions and the potential inflationary effects of a government budget with expansive spending plans.

Expert opinions differ on the outlook beyond the current stability. Jens Magnusson, chief economist at SEB, believes a further rate cut is more probable than a hike in the near term, forecasting the rate to remain at 1.75% throughout 2026. He highlights that unemployment and consumer spending trends will be key determinants for future monetary policy decisions. In contrast, Susanne Spector from Danske Bank warns that the government's generous budget could stimulate household consumption and push inflation upwards, increasing the likelihood of an interest rate hike as early as next year. However, most consensus, including from DN, suggests that the next significant rate move may not occur until around 2027, following an expected end to the recession.

Erik Thedéen, Governor of the Riksbank, described the current rate as "advantageous" for the Swedish economy, underlining the bank's goal of balancing economic stability with inflation control. Despite the temporary hold on rates, the bank retains flexibility, acknowledging that future rate adjustments—either hikes or cuts—are possible depending on evolving domestic and global conditions.

The Riksbank's current stance emphasizes patience and vigilance in a volatile international environment marked by trade tensions and geopolitical uncertainties, with monetary policy cautiously supporting economic recovery while preparing for potential inflationary pressures ahead.