The general consensus is that the Riksbank will cut the key interest rate today by 25 basis points to 3.50%, After all, inflation is trending downwards, although the monthly changes in the core rate could fall a little more, Commerzbank’s FX Analyst Antje Praefcke notes
Two or three more moves for the rest of the year
“The economy is weakening and could be supported with interest rate cuts. In addition, the unemployment rate has been above 8% since the middle of last year, meaning that the labor market can no longer be considered as tight. The Riksbank also indicated at its last meeting in June that there could be ‘two to three’ more cuts this year. All in all, the signs are clearly pointing to ‘down with the policy rate’.”
“To be honest, I am undecided between two (50bp) and three (75Bp) further moves. But I expect the Riksbank to signal two or three more moves for the rest of the year. I would prefer two, as core inflation in particular is likely to remain above the inflation target for a little longer, but I assume that, sticking to its recent dovish stance, it will opt for three and thus fall in line with market expectations.
“Although the krona has recovered after the market's panic attack, it is still trading at lower levels than in June, which could cause the Riksbank to worry about exchange rate-induced price pressure to re-emerge. I think it would be bold to assume that the krona will appreciate anyway thanks to the (expected) interest rate cut cycles in the US and the euro zone.”
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