The ECB is expected to raise its key interest rate by 0.25 percentage points early this afternoon (2:15 p.m.), which would bring the deposit rate to 2.50 percent. However, what all analysts are wondering is whether it will provide any clear guidance on future interest rate decisions.
If they send a signal that they expect to need to do more this year, it will further increase the pressure on the Swedish Central Bank, says Amanda Sundström, fixed-income strategist at SEB.
Put pressure on the krona
A higher policy rate primarily affects short-term interest rates, such as variable mortgage rates. Expectations of future increases in the policy rate can, in turn, push up longer-term interest rates - such as fixed mortgage rates.
Torbjörn Isaksson, chief analyst at Nordea, does not believe that the ECB will provide any precise guidance on key interest rates going forward. But he sees it as a possible scenario that the ECB will raise rates again later this year.
The energy situation in Europe is precarious, with low gas stocks. And the oil price is at $100 per barrel, as the situation in the Middle East has not improved. So there is a risk that there will be another interest rate hike. Maybe not right away at the next meeting, but around the turn of the year it is conceivable, he says.
"Virtually all central banks have or are about to raise interest rates. This is putting downward pressure on the krona," he adds.
A weaker krona can lead to unwanted inflationary pressure via higher import prices in kronor.
Is remarkable
Friday's figure for core inflation in August in the US - which is expected to fall to 2.4 percent, from 2.5 percent in July - is another factor that could change the monetary policy game plan and, via a higher policy rate, ultimately push up Swedish mortgage rates.
According to Sundström, several senior members of the US Federal Reserve (Fed) have said that this particular figure will be decisive for how they vote at the next interest rate meeting.
That in itself is remarkable, she says.
It will be a crucial figure in many ways. If the Fed decides to raise rates and signals that there is more to do, then the pressure on the Swedish Central Bank will increase, she adds.
The key interest rate will be raised by 0.25 percentage points to 2.00 percent before the end of the year, followed by three more increases of equal size in 2027-2028, according to pricing among traders in the fixed-income market.
Variable mortgage rates normally move up and down with the key interest rate. If the interest rate on a three million SEK mortgage were to be increased by 1 percentage point, the interest cost would increase by SEK 30,000 per year or SEK 2,500 per month - if the effects of the interest deduction are ignored.
In its interest rate path, the Swedish Central Bank has flagged a 50 percent probability of an increase this year and has opened the possibility that there could also be an increase in 2028.
SEB and Nordea economists expect two increases in the key interest rate, but have different timings for the increases in their forecasts. SEB expects the increases to come in March and September 2027, respectively. Nordea expects one increase in November this year and another in February 2027.
(TT)
