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According to ING analysts, the Riksbank’s policy stance may no longer be an outright negative for SEK as unease about an overly weak currency has grown among board members, and the Riksbank’s appetite for (even more) negative rates has declined markedly.

Key Quotes

“The desire to leave negative territory was a key reason behind the Riksbank’s rate hike in 4Q19 and intention to do more.”

“While inflation has the potential to dip back in the near-term (given a negative drag from electricity prices), this should prove temporary. This, combined with the current  weak exchange rate, suggests the bar for renewed interest rate cuts is rather high. That said, we think the rate hike that the Riksbank is current projecting for later this year/early next is also unlikely to materialise.”

“Our thinking here is partly linked to the central bank’s projection for wage growth, which we suspect could prove a little optimistic. A mixture of global uncertainty and a modest decline in inflation expectations among labour organisations suggest next year’s crucial wage negotiations may end with a fairly subdued result.”

“In contrast to the 2014-2015 period, we don’t think the Riksbank will attempt to match the European Central Bank’s  easing cycle (or at least not this year), either via rate cuts or a new round of quantitative easing, given that the strong exchange rate is no longer a concern. If anything, the opposite is true. Still, this failure to  match  ECB easing is unlikely to be seen as SEK positive in our view, given the negative global factors.”