According to analysts from Rabobank, policymakers in Sweden may be very reluctant to push interest rates back below zero, but it is possible that a sharp appreciation in the value of the Swedish krona against the euro would provide the additional motivation needed for such a move.
Key Quotes:
“The bar to moving the repo rate back below zero in Sweden may be set very high, but it is conceivable that this could happen in the coming months.”
“Having sold off sharply in March at the height of the coronavirus crisis, the SEK has recovered all of the lost ground. In June EUR/SEK dipped to levels last seen in January 2019 before the SEK gave back a little ground. In view of the fact that CPI inflation was flat y/y in May, it can be assumed that if EUR/SEK breaks convincingly below 10.40 and heads back towards the 10.00 area, the odds of a rate cut are set to increase.”
“We hold a 3 month forecast of EUR/SEK of 10.40 which may allow the Riksbank to avoid a repo rate move.”
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