Nomura economists expect Sweden’s Riksbank to keep the policy rate at 1.75% at the 19 March meeting, and to leave it unchanged through 2026. They see weak CPIF ex-energy inflation and soft GDP indicators, but also inflation risks from the Middle East conflict and higher energy prices. They expect the Riksbank to repeat guidance that the rate is expected to remain at this level for some time. In new forecasts, CPIF ex-energy inflation may be revised down slightly, while CPIF may be revised slightly higher.

Inflation Risks Versus Weak Growth

The analysis notes concerns about second-round effects from higher energy costs, alongside more uncertainty for inflation and economic activity. It also points to possible demand impacts, with uncertainty affecting confidence to spend and invest. Sweden is described as having a fragile recovery after slow or negative GDP growth in 2022 and 2023. Monthly GDP data suggest output fell in both December and January. Nomura expects no rate change this year and a hike at the end of 2027, taking the rate closer to the middle of the neutral range of 1.50%–3.00%. It adds that a quick end to the conflict and weaker inflation could bring a cut this year, while a longer conflict could bring faster inflation and an earlier hike. With the Riksbank widely expected to hold its policy rate at 1.75% this week on March 19, short-term rate volatility should remain low. Given this stability, traders could consider strategies that profit from a lack of movement, such as selling short-dated options on Swedish interest rate futures. This stance is supported by the Riksbank’s likely guidance that rates will stay at this level for some time.

Market Positioning Implications

We are seeing a clear conflict between weak domestic data and external inflation risks. Recent statistics showed that Sweden’s GDP contracted by 0.2% in the final quarter of 2025, and CPIF ex-energy inflation for February came in just under the 2.0% target. However, with Brent crude oil recently trading around $95 per barrel due to Middle East tensions, the Riksbank cannot risk cutting rates yet. This paralysis suggests that the yield curve might steepen, as short-term rates remain anchored while longer-term rates reflect future inflation and growth possibilities. The fragile recovery we have seen since the slowdown of 2023 and 2024 is being hampered by this uncertainty, making long-dated rate hike expectations a key area to watch. Traders might look at instruments betting on higher rates further out, perhaps in late 2027. The primary divergence will be driven by geopolitics, creating a binary outcome for traders to position for. A de-escalation in the Middle East could quickly bring rate cuts back into play, while a wider conflict would almost certainly force the Riksbank to hike sooner than planned. This makes buying longer-dated, out-of-the-money options a viable strategy to position for a significant policy shift in either direction. Create your live VT Markets account and start trading now.

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