The Riksbank has decided to keep its policy rate at 1.75%. They cite economic growth and a rise in household spending as reasons for this decision. With inflation at target levels, the bank can take a careful approach, even though the job market is weak.
The central bank is closely monitoring economic changes and is prepared to adjust its policy if needed. No major external shocks are expected, so the policy rate is likely to remain the same for now.
Historical Context of Riksbank Policy
In 2025, the Riksbank maintained its policy rate at 1.75% and took a careful wait-and-see approach. This decision was based on strong growth and inflation meeting its target, despite a weak job market. However, the situation has changed dramatically since then.
The slowdown the bank hoped to avoid has occurred domestically, as new data from Statistics Sweden shows inflation fell to 1.4% year-over-year. This is significantly below the 2.0% target seen in 2025. Additionally, unemployment has risen to 8.5%, confirming the earlier signs of labor market weakness.
Due to this downturn, the Riksbank had to change its strategy, cutting the policy rate twice in late 2025 to the current 1.25%. This adjustment became necessary after Q4 2025 GDP growth was only 0.1%. The bank’s careful stance has shifted to a more aggressive easing approach.
Impact on Derivative Traders
For derivative traders, the low-volatility environment of mid-2025, which favored selling options on the SEK, is now over. With the central bank in an easing cycle, the implied volatility on SEK currency pairs has increased from last year’s lows. There is a growing demand for call options on EUR/SEK, as traders expect further weakness in the Krona.
Given the clear shift towards a dovish stance, strategies should focus on continued SEK depreciation and potential further rate cuts. Forward rate agreements suggest at least one more 25 basis point cut before the third quarter of 2026. This means that positioning for a lower policy rate through interest rate swaps or futures is still a smart trade.
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