Swedish inflation is set to rise sharply over the next year. As such, the Riksbank’s intention to loosen monetary policy further seems like a mistake and any additional interest rate cuts will have to be reversed before long. Ultimately, we expect the rise in inflation to lead the Riksbank to increase its repo rate sooner than market participants or consensus forecasts currently envisage. We disagree with the view that the Riksbank is unable to tighten policy due to the probable sharp appreciation of the krona. Rather, a strong rise in domestic inflation will offset the impact of lower import prices. Similarly, we do not think that a rate rise will trigger a downturn in consumer spending. Instead, there are reasons to think that households’ borrowing costs will not rise dramatically during the early stages of monetary policy tightening.
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services