Scope to wait at the Riksbank

The Riksbank Board maintained the policy rate at 1.75% following the May policy meeting, matching unanimous sell-side consensus.

A modest hawkish tilt in the Bank’s guidance is hardly a surprise either, recognising the upside inflation risks posed by elevated energy prices. But for the time being, price growth remains subdued, warranting no change in rates, with the krona largely unbothered by today’s as expected announcement.

With markets entering this meeting with a modest hiking bias already embedded, we are inclined to see today’s guidance as an endorsement, rather than an attempt to steer expectations.

Indeed, the statement largely marked-to-market with respect to recent events, noting that: “The risk that the war in the Middle East will lead to higher inflation has increased somewhat. However, inflation is currently below the target and the recent outcomes have been clearly lower than the Riksbank’s forecast in March.”

Arguably, that underplays just how weak Swedish price growth is at present, with yesterday’s publication of April data showing prices falling -0.1% YoY, well below expectations for a 0.4% growth rate.

With CPIF tracking at 0.8% YoY and showing no change at all once excluding energy costs, a rate cut would ordinarily be in consideration at this point, if it were not for events in the Middle East and the knock-on implications for global energy prices. These impacts are not obviously showing up in Swedish CPI figures yet, but it is reasonable to expect they will in time. An assessment from the Board that there is “scope to wait until there is a clearer picture of the effects of the war” is reflective of this context.

All told, the latest guidance marks a modest hawkish shift relative to prior messaging, matching the evolution of market expectations over recent weeks.

However, with traders having already moved ahead of this policy meeting, the implications for FX markets post-event are negligible;  EURSEK remains little changed relative to pre-announcement levels.

Author:

Nick Rees, Head of Macro Research

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