Swedish Krona: Riksbank seen on cautious hawkish hold – BBH
Brown Brothers Harriman’s (BBH) Elias Haddad expects the Riksbank to keep its policy rate at 1.75% for a seventh consecutive meeting while leaving the door open to a later hike as inflation runs above projections.
Brown Brothers Harriman’s Elias Haddad anticipates the Riksbank will maintain its policy rate at 1.75% for an additional seven meetings while keeping open the possibility of a future rate increase. However, with inflation remaining well below expectations, Haddad views the criteria for a hawkish stance as rigorous, presenting a challenging headwind for the Swedish Krona (SEK).
The Riksbank is widely projected to keep the policy rate at 1.75% for a seventh consecutive meeting, scheduled for Thursday. Crucially, the Riksbank is likely to maintain the possibility of a rate hike later in the year due to inflation exceeding projections. In July, Sweden’s CPIF was 0.7% year-over-year versus the Riksbank’s forecast of 0.5%, while CPIF ex-energy was 0.6% year-over-year versus the Riksbank’s forecast of 0.2%.
Despite this, given that inflation is still well below the 2% target, the threshold for a hawkish Riksbank adjustment is high, creating a headwind for SEK. The swaps curve currently incorporates a 25 basis points hike to 2.00% in December.
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