The Swedish central bank, Riksbank, is likely to stand pat during its upcoming meeting next week, according to a Nordea Bank research report. Inflation in the country is expected to bounce, while the economic growth has been better than anticipated. However, the central bank cannot sit back and relax and hence the soft tones are expected to persist.

The March inflation outcome does not appear to be low. The CPIF inflation was indeed just 1.5 percent and 0.2 percentage points below the Riksbank’s projection, the composition was in favour of the central bank, suggesting that inflation is already bouncing back up in April and then might come above the central bank’s forecast in the February report.

Given that energy prices are at their current levels and that food prices are slightly higher, inflation appears set to be around the target rate of 2 percent for much of the current year. Thus, the Swedish central bank is likely to adjust its inflation projection upward in the short term, stated Nordea Bank.

But inflation is getting additional boost from energy prices that are higher than one year ago, while at the same time the weakening of the SEK from 2016 is feeding through the figures of inflation. When these effects fade away later in 2017, inflation is expected to inevitably fall back again, noted Nordea Bank.

Underlying cost pressure is unlikely to rise to any significant degree, underpinned by the recently signed wage agreements that run through March 2020. Therefore, the Swedish central bank might cut its wage forecast despite the robust economy.

“The downward adjustment of the Riksbank’s wage assumptions, and inflation forecast for 2018 and 2019, will however probably be a gradual process over several reports”, said Nordea Bank.

The Riksbank is likely to unanimously keep the repo rate on hold at -0.50 percent during its meeting next week. Also, the purchase programmes are likely to end in June 2017 as planned, suggesting an increased chance of SEK appreciating strongly against the EUR as the ECB’s QE-programmes would continue at least until the end of 2017, according to Nordea Bank.

“Despite high growth and probably increased pressure to ease off the accelerator, we expect the Riksbank to maintain its stance and keep monetary policy highly expansionary for a long time to come, not least as the Riksbank has invested heavily in its conducted policy. We expect an initial rate hike in October 2018”, added Nordea Bank.