Riksbank signals potential 2026 rate hike amid inflation concerns tied to Middle East conflict

Sweden’s central bank held its policy rate steady at 1.75% on June 17, but made clear that a rate hike is very much on the table if the ongoing Middle East conflict sends inflation spiraling. The Riksbank has held this rate since March 2026, following three rate cuts in 2025. Markets are pricing in roughly a 50% probability of at least one 25-basis-point hike in Q4 2026. The inflation math looks complicated The Riksbank actually revised its 2026 CPIF inflation projection down to 0.6%, from 0.7% previously. But the 2027 forecast is where things get interesting. The Riksbank now expects CPIF inflation to climb to 2.7%, overshooting the bank’s 2% target by a meaningful margin. The primary culprit: energy and commodity prices pushed higher by supply disruptions linked to the Iran conflict. The bank’s governor has emphasized that the institution’s strategy remains flexible, calibrated to evolving conditions rather than locked into a predetermined path. From rate cuts to potential hikes in under a year Throughout 2025, the Riksbank was firmly in easing mode, delivering three consecutive rate cuts that brought the policy rate down to 1.75% by March 2026. Rising energy costs and commodity ...