In view of analysts at Nomura, the key development since the April Riksbank meeting is the strengthening of the ECB’s forward guidance at the June meeting.
Key Quotes
“For the Riksbank, the end of the APP removes the risk that the ECB could have announced further easing measures and extended purchases into 2019 – a small positive for the Riksbank. However, the stronger forward guidance on rates is more important in our view.”
“Current Riksbank forecasts now imply substantial divergence from ECB policy, with the Riksbank suggesting policy rates will be at 0% in Q3 2019 – conducting 50bp of tightening before the ECB has even raised rates.”
“We expect Riksbank board members to express concern this meeting about the possible market impacts of normalising policy so far ahead of the ECB. As repo rate hikes were pushed out last meeting, our bias is to expect an unchanged repo rate path for now, but risks are tilted towards further downgrades.”
“Maintain short SEK positions
Market expectations for Riksbank tightening have already moderated, but we see scope for these moves to continue. The market continues to price over 25bp of tightening ahead of September 2019.
We remain sceptical about the Riksbank’s ability to substantially normalise policy this cycle with growth likely to slow towards/below trend this year, and stick to our long NOK/SEK positions.”
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