Sweden’s Riksbank cements a dovish stance with no rate hikes forecast. With the krona's rate profile likely to remain unattractive in the medium-term, economists at ING expect it to lag pro-cyclicals backed by domestic tightening cycles in periods of supportive risk sentiment.
Riksbank remains by and large on the dovish side
“The Swedish Riksbank remains firmly at the back of the pack when it comes to tightening policy. Policymakers unsurprisingly kept the repo rate on hold this month. The central bank is forecasting no changes in its repo rate for at least the next three years.”
“The reiteration of the Riksbank’s dovish policy continues to cloud the outlook for SEK, as any periods of sustained recovery in risk sentiment should – in our view – see the krona lag other procyclical currencies (like Norway's krone) which can count on a domestic tightening story.”
“SEK's medium-term outlook remains tied to the prospects of the global and, in particular, European recovery. For now, we are still inclined to think that countries with high vaccination rates – like the European ones – will be able to weather the coldest months without having to resort to strict containment measures, as third doses of the vaccine are rolled out. We think such prospects leave room for EUR/SEK to gently trend lower into the middle of next year, moving sustainably below 10.00 in 1Q22.”
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