What Changed
Sweden's central bank, the Riksbank, left its policy rate unchanged, saying it was well-balanced to keep the rate at its present level.
At the same time, the Executive Board said the probability of raising the policy rate later this year has increased relative to its March assessment.
The Executive Board also raised its policy rate forecast somewhat compared with its previous projection.
The Riksbank added that it remains highly prepared to adjust monetary policy.
Highlights
- Riksbank left its policy rate unchanged, judging the decision well-balanced.
- The Executive Board raised the probability of a rate hike later this year compared with its March assessment.
- Supply disruptions linked to the Middle East war have lasted almost four months.
- The United States and Iran announced a Memorandum of Understanding.
Why the Bank Held Steady
Inflation in Sweden is currently described as low, a level the Riksbank links in part to the dampening effects of fiscal policy measures.
Growth is expected to be higher this year than last year, even though first-quarter growth came in lower than expected.
Overall economic activity in Sweden remains somewhat weaker than normal, while the labour market's recovery is still described as tentative.
Household consumption has continued to increase at a solid pace, and purchasing power has strengthened.
Middle East Tensions and Oil Prices
Supply disruptions tied to the war in the Middle East have now lasted almost four months, and the Riksbank says they are dampening economic development somewhat while pushing inflationary pressures higher.
The Riksbank describes the situation in the Strait of Hormuz as tense, reducing the supply of oil products and pushing up energy and fuel prices.
Its forecasts continue to rest on oil futures prices.
Separately, the United States and Iran have announced a Memorandum of Understanding.
Cost pressures facing the Swedish business sector have increased, and inflation abroad has also risen.
The Riksbank also points to broader vulnerabilities in the global economy, including high equity valuations and unsustainably high public indebtedness.
Who Is Affected
If you trade the Swedish krona or hold positions linked to Swedish rates, this decision matters because the Riksbank has signalled a higher chance of a rate move later this year than it judged in March.
Anyone watching energy-linked instruments should also note that the Riksbank ties part of the current inflation picture to disruptions around the Strait of Hormuz.
What To Watch Next
The Riksbank has said it remains highly prepared to adjust monetary policy, and its policy rate forecast has already been raised somewhat.
Developments around the Memorandum of Understanding between the United States and Iran are worth following given their bearing on the same regional tensions the Riksbank has cited.