Riksbank to hike despite soft inflation and rallying krona
At a Glance
The Riksbank's anticipated 25bps rate hike on November 4 aligns with its ongoing tightening bias, despite recent soft inflation and a strengthening krona. Per the full note from ING, inflation readings have been weaker than forecast, yet macro conditions—particularly energy price pressures—support further monetary tightening. This move could signify the Riksbank's strategic intent to pre-emptively combat inflationary risks stemming from a robust economy. Notably, amidst fluctuating market expectations, the current sentiment is shifting; swaps suggest diminishing prospects for the hike, now at 15-18bps, compared to earlier expectations of 22-24bps. The desk observes that the Riksbank's commitment to maintain a tightening stance may be more relevant than the immediate downturn in inflation metrics. This outlook will be crucial for traders, especially leading into year-end positioning and January assessments.
Key Takeaways
- 01Riksbank expected to hike by 25bps despite soft inflation signals.
- 02Market expectations on rate increases have softened recently.
- 03Resilient economic indicators and energy price pressures bolster tightening bias.
- 04Current projections suggest a hawkish stance may persist into early 2024.
Full Analysis
What the desk is arguing
The desk maintains that the Riksbank will indeed raise rates by 25bps, bringing the policy rate to 2.0%—a view supported by recent communications from the central bank. Per the full note from ING, despite September's benign inflation print, officials have indicated a determination to sustain preemptive tightening measures due to a stable economic backdrop and rising energy costs.
Furthermore, although inflation metrics suggest moderation, the influence of surging energy prices could skew perceptions toward a hawkish outlook. The desk notes that key inflation measures, such as CPIF excluding energy at just 0.5%, have not deterred the Riksbank's resolve, hinting at both resilience and potential volatility in policy adjustments going forward.
Where it sits in our coverage
Currently, our consensus targets for EUR/SEK reflect a broad range largely centered around 11.00. Relevant firms include: - jpmorgan: 11.10 (Dec-26) - bofa: 11.04 (Dec-26) - db: 11.00 (Dec-26)
This perspective finds alignment with ING, which also points to the risks of further tightening due to energy pressures, but deviates slightly in its projections with a more cautious stance on future hikes. Thus, the desk’s forecast sits at the upper end of the range, emphasizing a hawkish outlook on the Riksbank's trajectory.
How other firms see it
Several firms are aligned with the Riksbank's expected upward trajectory, emphasizing the need for vigilance regarding inflation dynamics. Notably, jpmorgan and db share similar hawkish expectations, while bofa counters this view, suggesting a more tempered approach towards rate hikes.
Watching EUR/SEK will be critical, particularly as the Riksbank navigates its policy amidst external economic conditions, with implications reflective of the overall euro area’s growth metrics.
Market Implications
Traders should closely monitor the EUR/SEK pair for volatility as the Riksbank approaches its November decision, particularly as energy price movements could further influence inflation outlooks. A sustained rates trajectory will be pivotal ahead of the January review.
From the original
Articles Riksbank to hike despite soft inflation and rallying krona Published 15:19 FX Sweden Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download We expect a 25bp hike on 4 November by the Riksbank, alongside a reiteration of the tightening bias. Inflatio
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