Sweden's central bank held its key interest rate at 1.75% today, as widely expected, and left its outlook unchanged while flagging that uncertainty was high and that it was too early too tell how the Iran war would affect the economy.
"The war in the Middle East has caused major movements in energy prices and in financial markets, including a rise in short-term market interest rates," the Riksbank said.
"The Riksbank monitors developments closely and will adjust monetary policy if the outlook for inflation and economic activity so requires," it added in a statement.
Analysts in a Reuters poll were unanimous in seeing no rate change. The median forecast was for the Riksbank to maintain its current policy until it hikes in the third quarter of 2027.
The Riksbank is due to publish its next rate decision on May 7.
The war in Iran has clouded an already fragmented picture for central banks trying to gauge the effects of US tariffs, the Ukraine war and AI adoption on growth and inflation in economies that have yet not fully shaken off their pandemic hangovers.
"The Riksbank follows suit with other central banks: sits still in the interest rate boat on an increasingly stormy sea," SEB Chief Economist Robert Bergqvist said.
"Increased stagflation risks are a potentially difficult monster also for the Riksbank," Bergqvist added.
Growth has been picking up in Sweden, but recovery has come in fits and starts. At the same time the pace of inflation has slowed, in part thanks to a stronger Swedish crown.
With oil prices spiking and the knock on effects of conflict in the Middle East likely to push up inflation, any potential for a rate cut this year to give the economy an extra boost has probably disappeared.
But the prospect of slower growth and the low starting point for inflation are likely to mean rate-setters can wait until the smoke clears somewhat before making any policy shift.
Even then, most analysts expect the balance between inflation and growth to remain roughly stable.
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