The sole focus of today’s Riksbank decision was on the rate projections and QE purchases going forward, as markets had widely expected the central bank to keep policy unchanged in today’s meeting. The Riksbank did not disappoint – today’s forward guidance is the first signal of anything other than a completely flat repo rate path, which is something the Riksbank had been sticking to since the start of the pandemic.
Inflation is expected to be on target going forward, with CPIF seen rising to 2.1% in 2024.
Rates had previously been projected to remain unchanged until Q3 2024, but this has now moved to a rate of 0.06% in Q2 2024, 0.12% in Q3 2024 and 0.19% in Q4 2024, which indicates a light hawkish tilt. Even though the projected rate path is less aggressive than what the market is currently pricing, traders will see this as a green light to become more optimistic, as it signals the February meeting could potentially have a more hawkish outlook, Covid permitting. For this reason, the Swedish krone traded on the front foot after the expected rate decision and fell below the 10.19 level in EURSEK, although the moves are modest compared to recent trading ranges.
Beyond the repo rate path, the tone of the statement was similar to previous statements and the guidance on QE was broadly expected. On balance, today’s meeting looks like a taster of what February’s meeting may bring.
EURSEK pares back gains after slight hawkish tilt in Riksbank’s forward guidance
Author: Ima Sammani, FX Market Analyst