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According to Daniel Brødsgaard, analyst at Danske Bank, yesterday’s Riksbank decision ended up as a big disappointment for them (and the krona) as the rate path was lowered by as much as 40bps at the end of the forecast horizon (Q1 2022), and the timing of the next hike was effectively shifted from Sep/Oct this year to year-end or even early 2020.

Key Quotes

“On top of that, the board deemed it necessary to continue reinvestments of the Riksbank’s already vast bond portfolio. Admittedly, this was against our call for the meeting, and as such our 1M forecast of 10.35 seems very distant.”

“The initial market reaction was to send the cross up above 10.65 (from 10.50), which seems reasonable given the shift in Riksbank tone. Lacking any near-term SEK triggers, we cannot rule out tests of the 2018 highs around 10.70 short term.”

“If anything, the risks are tilted towards an even more dovish outcome from the next meeting (July), as we remain more pessimistic than the Riksbank on both domestic growth and inflationary pressure. We are in the process of reviewing our SEK forecast profile in light of the latest developments.”