Inflation Forecasts Shift Higher
In response to the conflict, Nordea has raised its forecast for CPIF inflation by around 0.5 percentage points. This adjustment is said to bring its CPIF path into line with the Riksbank’s December assessment. The balance of risks for the policy rate is described as moving from a clear likelihood of a rate cut to a more neutral profile. A longer-lasting conflict is linked to a higher probability of a rate hike. A year ago, we saw the Riksbank adopting a wait-and-see approach, expecting the policy rate to hold at 1.75% through 2026. The uncertainty from the conflict in the Middle East had shifted the balance away from rate cuts. That cautious stance now appears to have been an underestimation of inflationary pressures. With the latest CPIF inflation data for February 2026 coming in at 2.4%, we are now seeing inflation remain stubbornly above the 2% target. This persistent pressure is why the Riksbank already moved its policy rate to 2.00% late last year, defying earlier expectations of a prolonged hold. The market is now pricing in the possibility of another hike to cool demand.Market Strategy And Krona Impact
Traders in interest rate swaps should be positioning for a ‘higher-for-longer’ scenario, as the forward curve reflects a hawkish Riksbank. The view from early 2025 that rates would stay flat is no longer valid. Paying fixed on short-term swaps could be a viable strategy to speculate on further rate increases. This has directly impacted the krona, which has strengthened against the euro, with the EUR/SEK pair falling from over 11.50 to near 11.20 in recent months. Options traders should look at elevated implied volatility around upcoming central bank meetings. Buying SEK calls could be a way to position for a continued hawkish stance. However, the situation is complicated by recent signs of economic slowing, with GDP contracting by 0.1% in the final quarter of 2025. This puts the Riksbank in a difficult position of having to fight inflation while trying to avoid a deep recession. This conflict will likely increase volatility in both rates and the krona in the coming weeks. Create your live VT Markets account and start trading now.
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