Thedéen: Middle East Conflict Adds Uncertainty to Swedish Interest Rates

Last week, the Swedish Central Bank lowered the interest rate and at the same time indicated that another reduction may come later this year. Riksbank Governor Erik Thedéen thinks it's too early to say how the escalation in the Middle East in the past week can affect the interest rate decision.

» Published: June 24 2025

Thedéen: Middle East Conflict Adds Uncertainty to Swedish Interest Rates
Photo: Claudio Bresciani/TT

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Now we'll see where this takes us. It's clear that it has increased uncertainty to some extent, but it's a moving target. It changes from one day to another, he says.

The underlying force in the Swedish economy is, according to Erik Thedéen, still good despite everything.

It's therefore not certain at all that we will lower the interest rate. I don't see that the latest developments have changed the picture so much that we would have any other message today, he says.

Oil prices affect

For the Swedish economy, the greatest risk with the war is rising oil prices, and with that rising inflation.

That's the direct effect. Then you have this damping of investments and consumption that comes from uncertainty. That effect was already large before, and then the question is whether this makes it even worse, but it's too early to say, he says.

Recently, the government announced that the amortization requirement for mortgages will be eased. Among other things, the extended amortization requirement, which is based on income, will be abolished. A proposal that Erik Thedéen sees risks with.

We will submit a response to the consultation, so I shouldn't anticipate it, but it's unfortunate that there is no limit related to income in this proposal, he says.

Can become a problem

The risk, according to Thedéen, is a situation where the size of households' loans increases rapidly in relation to incomes. Something that can become a problem if interest rates rise.

In the investigation that the government's proposal is based on, there was an income ceiling included.

It was a limit that I thought was very high, but there was at least a limit. They have for various reasons chosen not to include it, he says.

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By TTEnglish edition by Sweden Herald, adapted for local and international readers

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