Sweden's central bank kept its policy rate on hold at 4.00% on Thursday and said it was ready to hike again if inflation proved stubborn, though analysts now expect the hiking cycle to have peaked.
The central bank has jacked up interest rates from zero in April 2022 in a series of hikes to fight a surge in inflation caused by the pandemic and the war in Ukraine.
The Riksbank said that inflation, which peaked at over 10%, was now moving in the right direction, thanks to eight consecutive rate hikes, and that the economy and labour market were now slowing.
However, inflation is still too high and the Riksbank said tighter policy could be needed if price pressures do continue to ease.
"The Executive Board assesses that monetary policy needs to be contractionary and is prepared to raise the policy rate further if inflation prospects deteriorate," the Riksbank said in a statement.
Few think this is likely. "We don't think another hike will come," Swedbank said in a note.
The Swedish crown weakened sharply after the announcement.
Analysts had been split ahead of the decision with 10 of 19 picking a hike and nine expecting no change.
While the Riksbank forecasts rates will be at the current level - or higher - through next year and into 2025, many analysts expect the next move to be a cut.
Sweden's economy is expected to shrink both this year and in 2024, while the effects of rate hikes to date have not been fully felt.
Households and property firms are already struggling with debts.
"We have pencilled in a first cut for May next year, which is much earlier than the Bank anticipates," Andrew Kenningham, Chief Europe Economist at Capital Economics, said.
Markets are pricing in the chance of a cut from the middle of next year.
The European Central Bank is expected to cut as early as spring next year and the U.S. Federal Reserve is likely to follow as similar path, as is the Bank of England.
The Riksbank publishes its next rate decision on Feb. 1.
