Swedish Krona: Hawkish Riksbank stance holds – Commerzbank

Commerzbank’s Antje Praefcke expects the Sweden’s central bank, the Riksbank, to leave its policy rate at 1.75% and maintain a hawkish tone similar to June’s statement. Despite inflation measures remaining below 1%, she argues special fiscal effects are depressing current readings and should fade, with inflation seen rising again. Overall, today’s decision is judged neutral for the Swedish Krona (SEK).

Policy rate on hold with hawkish bias

"It is widely expected that the Riksbank will leave its policy rate unchanged at 1.75% today. I share this view."

"I also expect the statement to sound similar to the one issued in June, which had a marginally more hawkish tone compared to March and indicated a slightly higher probability of an interest rate hike:"

"The Executive Board assesses that it is well-balanced to leave the policy rate unchanged at 1.75% now, but the probability that the rate will be raised later this year has increased in relation to the assessment in March."

"Some time ago, the prospect of an agreement between the US and Iran had eased tensions in the energy markets. However, this hope faded quickly. The Riksbank will therefore remain vigilant regarding inflation risks."

"The special fiscal effects should subside by the end of the year, causing inflation to rise again. The Riksbank can therefore confidently look through the fact that inflation has fallen below the inflation target and its tolerance band."

"The interest rate path prices in a slightly higher policy rate toward the end of the year and beyond, which could be raised toward the end of the year."

"Since no sustained easing of the Middle East conflict is currently in sight and energy prices remain elevated, I expect the Riksbank to maintain its hawkish stance today and wait to see how the situation develops. The new forecasts will be published at the end of September; until then, the Riksbank is under no pressure to act."