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Economic & Financial WeeklySweden: Riksbank postponing hikes


US: USD 500bn in asset purchases, and something more
We are convinced that the Fed will restart asset purchases as well as intro-duce some sort of temporary inflation target to increase the effectiveness of its purchases at the next interest rate meeting. Further quantitative easing will only work if inflation expectations rise more than nominal bond yields, lowering expected real bond yields. Thus, success depends to a large degree on how well the Fed can shape market expectations after the interest rate meeting.

Sweden: Less front-loaded Riksbank hikes now seem likely
Referring to the weak international picture and low inflationary pressures in Sweden, the Riksbank lowered its rate path notably at the October meeting. We expected only a lower trajectory beyond the one-year horizon, consider-ing the strong and broad-based recovery in the Swedish economy. We now believe that the rate hikes will be a little less front-loaded than we previously assumed over the coming year. However, the Riksbank's repo rate peak at 3.50 percent still looks too high.

Norway: Interest rate hikes postponed until next summer
As widely expected, Norges Bank kept the interest rate unchanged at 2 per-cent at this week's interest rate meeting. In addition, the interest rate path was revised slightly downwards in the near term. The new path implies that the interest rate will be kept on hold until next summer.

Eastern Europe: Beneficiaries of the currency war
A global battle for market shares through currency devaluation still seems to be on the agenda. Eastern Europe is a mixed crowd in that respect. While Central Europe consists of free floaters, Russia and its neighbours further to the East still like to meddle. Against that background, the Polish zloty still stands out as a top beneficiary of the efforts to reflate in the ad-vanced economies.