Riksbank preview: Low inflation limits hawkish scope
At a Glance
The desk anticipates that the Riksbank will maintain a wait-and-see approach due to persistently low inflation, which limits the central bank's capacity to adopt a hawkish stance. Per the full note from ing-think, while a unanimous hold is expected on June 17, Riksbank Governor Erik Thedeen may still signal a cautious posture regarding future rate hikes. Inflation figures remain subdued, with headline CPIF at 1.5% and core CPIF at just 0.5%, compelling the Riksbank to prioritize stability over aggressive tightening, despite market pricing suggesting a 23 basis points increase by year-end. Risks to the Swedish Krona (SEK) could stem from any overt hawkish signals that may emerge in the accompanying statements or projections, which are unlikely to meet heightened expectations suggested by market curve pricing.
Key Takeaways
- 01The Riksbank is unlikely to adopt a hawkish stance due to low inflation.
- 02Current CPIF inflation is at 1.5% for headline and 0.5% for core.
- 03Market pricing suggests 23 basis points of tightening by year-end, potentially unrealistic.
- 04A hold on June 17 is expected with no imminent rate hikes.
Full Analysis
What the desk is arguing
The desk posits that the Riksbank is likely to remain dovish, constrained by notably low inflation metrics, which undermine the likelihood of immediate rate hikes. Per the full note from ing-think, this includes both headline CPIF at 1.5% and core inflation at 0.5%, compelling the Riksbank to hold firm on interest rates during their upcoming meeting.
With inflation falling well below the targeted level, the expectation of substantial monetary tightening is unfounded. The desk observes that while the possibility of highlighting inflation risks may exist, this does not translate into a genuine readiness to raise rates imminently.
Where it sits in our coverage
The consensus target for EUR/SEK currently sits at 1.075, with firms expressing positions as follows: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
The desk's view is somewhat conservative and aligns with the lower end of the spectrum, reflecting caution amid low inflation conditions, contrasting against jpmorgan's more bullish target at 1.10.
How other firms see it
Analysis shows a divergence among firms regarding expectations for SEK positioning. jpmorgan and others anticipate minor increases, aligning with the desk's cautious stance, while bofa stands in opposition, expecting weaker recovery reflected in their lower target of 1.04.
Significantly, the movements in EUR/SEK could be influenced by the overarching actions of the ECB and the macroeconomic backdrop pertaining to inflationary pressures across Europe, as tight monetary policy could trigger a spillover effect on SEK valuations.
Market Implications
Traders should pay close attention to the EUR/SEK pair, particularly around the June 17 Riksbank decision, as this could confirm or challenge current market expectations of tight monetary policy. A failure to align with tightening pricing could lead to a depreciation in SEK, while unexpected hawkish signals might stabilize or even strengthen it against the Euro.
From the original
Articles Riksbank preview: Low inflation limits hawkish scope 13:08 FX Sweden Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Sweden’s central bank will struggle to replicate the ECB’s hawkishness given stubbornly low inflation. We expect
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Riksbank likely to hold but hawkish risks are growing
The desk anticipates that the Riksbank will maintain its current interest rate on May 7, while acknowledging a growing risk of a hawkish shift in tone. Per the full note from ing-think, the potential for a rate hike in 2026 hinges on sustained high energy prices and further tightening from the European Central Bank (ECB). This backdrop suggests a cautious approach from the Riksbank, yet the market may need to prepare for a more aggressive stance if inflationary pressures persist. Our analysis aligns with the downward trajectory for EUR/SEK into year-end, reflecting a broader sentiment in the FX market.
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