Riksbank upgrades GDP outlook but kept interest rate projection flat

QE is the way to go, according to Sweden’s Riksbank which kept rates at zero today and stuck with a flat interest rate projection over the coming years. The central bank pledged to continue its asset purchase programme as it navigates its way through the pandemic, which is exactly what markets expected.

On paper, the latest Riksbank statement may not look exciting. The global economic recovery outlook is still too uncertain to change anything in interest rate projections for the coming years, although the central bank’s expectations for GDP in 2020 have been revised upward from -4.5% to -3.6% following better-than-expected consumer spending data.

What the statement does signal, however, is that while rates are not going to increase in the coming years, a return to negative interest rates is unlikely as well. The asset purchasing programme is also set to remain unchanged for quite some time.

The Swedish krone’s reaction to the Riksbank statement was limited, most likely because the upgrade in the GDP outlook did not measure up to the flat interest rate projection. Looking forward, we still remain bullish on SEK as the central bank has not signalled willingness to tighten policy any time soon, and Sweden’s economic trajectory makes the krone appealing to investors compared to most of the G10 space as many European countries are currently dealing with a worsening virus outbreak.

Swedish krone found some support in today’s Riksbank announcement but remained in weekly ranges of EURSEK

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