The Swedish Central Bank is expected to adjust its interest rate path in Thursday's interest rate decision. Torbjörn Isaksson believes in a hint that the next interest rate step will be a hike, further ahead. If so, the first since September 2023.
But not so much that they fully signal an interest rate hike, he says.
May see a hike
But this – an interest rate hike, that is – is what one should be prepared for now, according to Isaksson. And it can happen quickly, he warns:
It may be a hike in May or June. Inflation is so much higher than expected.
What decides is how long the Swedish Central Bank can describe the unexpectedly high inflation as a temporary deviation. So far, it's being talked about as effects of changes in the basket used to calculate inflation and that global food and commodity prices have risen – which can be dampened by a stronger krona going forward.
The picture also includes that Sweden is still in a low-growth economy, with higher unemployment, which can slow down interest rate hikes, according to Isaksson.
May want to mark
But if the Swedish Central Bank sees the slightest indication that the unexpectedly high inflation may persist, for example in higher inflation expectations, they may want to mark that they do not accept an increase in inflation, he says.
It's a rather surprising situation that has arisen. This was not in the forecasts just a few months ago, he adds.
The Swedish Central Bank lowered the repo rate to 2.25 percent in January, the sixth cut in nine months. When that decision was made, the interest rate market and many analysts expected a seventh rate cut during the second quarter of the year.
Uncertain situation
It doesn't look like that anymore.
It may be that Trump's tariffs have already hit Swedish stores, says Isaksson.
He points to changed consumption patterns and higher transportation costs after Donald Trump's election victory in November as possible explanations.
"It calls for vigilance," said Riksbank Governor Erik Thedéen himself about the unexpectedly high inflation – 2.9 percent in KPIF inflation in February – during an inquiry in the Riksdag's Finance Committee last week.
The Swedish Central Bank's inflation target is a KPIF inflation of around 2.0 percent.
It's a very uncertain situation. The Trump administration's statements on trade and security policy are unpredictable and we don't know what they will land on, and that makes it difficult to assess what the economic consequences are.
Economists at major banks have one by one revised their forecasts and removed predictions of further rate cuts from the Swedish Central Bank in recent times. The same shift is also seen in the interest rate market, where the pricing currently points to a probability of 16 percent for a rate cut this year. This can be compared to a probability of 88 percent a month ago.
The Swedish Central Bank's repo rate affects the entire economy's interest rate level. It usually pulls along variable mortgage rates upwards and downwards, even if it's not exactly the same size of movements.
If the mortgage rate follows an interest rate hike of 0.25 percent, it would increase the cost of a three million kronor mortgage by 7,500 kronor per year – 625 kronor per month – if you disregard the effects of interest deductions.
The US Federal Reserve (Fed) is not expected to move its repo rate in its next decision on Wednesday. The European Central Bank (ECB) – which is usually seen as more important for the Swedish Central Bank to relate to – is expected to cut its repo rates again at its meeting in April.
