Sweden’s Riksbank held its key interest rate unchanged at 1.75% on Thursday, while minutes from the Bank of Japan’s March meeting — also published Thursday — revealed growing concern among policymakers that the Iran war’s effect on crude oil prices could force rate hikes sooner than expected. Both central banks cited the Middle East conflict as the dominant source of uncertainty in their inflation and growth forecasts.
Riksbank Holds Steady for Fifth Straight Meeting
The Riksbank’s decision to maintain its policy rate at 1.75% was widely anticipated. The Swedish central bank has kept rates at this level since late 2024, initially expecting to begin gradual increases only in 2027. But the Iran conflict has upended that calculus — at its March 19 meeting, the Riksbank lowered its GDP growth forecast and warned that the war “makes the forecast very uncertain”.
Analysts at ING said ahead of the decision that the central bank would likely adopt a more hawkish tone. Markets have shifted considerably: at the start of 2026, traders were pricing in rate cuts, but swap markets now embed roughly 35 basis points of tightening through December. Gustav Helgesson, macro strategist at SEB, noted that “had it not been for the war in Iran, an interest rate cut in May or June would have been on the table”.
BOJ Minutes Reveal Hawkish Tilt
The Bank of Japan’s March meeting minutes, released Thursday, showed many board members saw the need to raise rates if the Iran war-driven energy shock persists and triggers second-round inflation effects. One member said the BOJ should raise rates “without long intervals,” while another said the central bank would need to hike “without hesitation” if the economy showed no signs of deterioration from the conflict.
The BOJ has held its policy rate at 0.75% since March, when it warned that inflationary risks were “skewed upward” due to the conflict. Japan imports approximately 95% of its energy from the Middle East, making it acutely vulnerable to the disruption. According to Reuters, the BOJ projects core inflation hovering around 3% for two consecutive years under a risk scenario of elevated oil prices and a weakening yen.
Central Banks Signal Conditional Tightening
Both institutions left the door open to rate increases depending on how the conflict evolves. The Riksbank said it “monitors developments closely and will adjust monetary policy if the outlook for inflation and economic activity so requires”. At the BOJ’s subsequent April meeting, a hawkish split in the vote highlighted the board’s growing concern over mounting price pressures.
Morningstar analysts noted that some forecasters see a Riksbank hike as early as August or September, though others — including SEB — consider this unlikely unless energy prices rise further. For Japan, the spring wage negotiations and subsequent inflation data will determine whether a rate hike materializes in June or later this year.
