Sweden's central bank, Sveriges Riksbank, left its policy rate unchanged at 1.75% at its final monetary policy meeting of 2025, held on 18 December. The decision came with a notable confirmation from the Executive Board that the bank considers its easing cycle to have concluded, signalling to financial markets that the current rate level represents the intended resting point for Swedish monetary policy for the foreseeable future.

The Riksbank's determination to hold came against a backdrop of inflation running below the bank's 2% target. Sweden's CPIF measure of consumer prices, the index the Riksbank targets, stood at approximately 1.5% at the time of the December meeting, a level that ordinarily might prompt discussion of further accommodation. The bank's confirmation that the easing cycle is over suggests policymakers judge the current rate as appropriately balanced given broader economic conditions and the outlook for price pressures.

BELOW-TARGET INFLATION FAILS TO PROMPT FURTHER CUTS

The fact that CPIF inflation is running roughly half a percentage point beneath the 2% objective did not move the Riksbank to extend its rate reductions. The bank's stance reflects a judgement that the undershoot is likely to be temporary and that maintaining rates at 1.75% is consistent with returning inflation to target over the medium term without excessive stimulus that could destabilise the economy or the housing market, which has historically been sensitive to Swedish interest rate conditions.

The Riksbank had engaged in a series of rate cuts through 2024 and into 2025 as it sought to unwind the restrictive monetary policy stance adopted during the inflation surge of 2022 and 2023. Those reductions brought the policy rate down from its cycle peak to the current 1.75% level. By explicitly confirming the cycle's end, the Executive Board has removed a layer of ambiguity that had surrounded its guidance in recent meetings, providing businesses and households with greater certainty about the cost of borrowing in the near term.

Sweden's economic performance has been mixed, with the export-orientated manufacturing sector facing headwinds from weaker demand in key trading partners, while the domestic economy has shown some resilience. The Riksbank's decision to declare the easing cycle complete despite below-target inflation implies a degree of confidence that growth conditions will be sufficient to lift prices back towards the target without requiring additional stimulus.

POLICY STABILITY HEADING INTO 2026

The December decision effectively sets the Riksbank's policy course for the opening months of 2026. With the easing cycle formally closed, the bank's communications will likely shift towards assessing when, if ever, a tightening of conditions might become appropriate, as well as monitoring whether the below-target inflation reading proves transient or signals a more entrenched disinflationary tendency in the Swedish economy.

Currency dynamics will also be a factor. The Swedish krona has been subject to periods of weakness against the euro and the US dollar, which can import inflationary pressure through higher costs for imported goods. A stable or strengthening krona would give the Riksbank comfort that the below-target inflation rate is not being exacerbated by currency depreciation. The bank's next scheduled policy decision in early 2026 will offer the first opportunity to review the December assessment against fresh economic data.