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Swedish Rate WrapStronger krona no obstacle to rate hike

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Remarkably, this week's inflation figures managed to land close to both the market's and the Riksbank's expectations. Even so, we saw the largest daily strengthening of the krona in conjunction with CPI results since 2013 (Figure 1). As we see it, this strengthening is a reaction to an unjustifiably steep decline in the wake of the Riksbank's repo rate decision. Backed by inflation figures that are in line with the Riksbank's forecast, and the minutes from the Riksbank's April meeting, the signals are growing stronger that a rate hike really will be introduced this year. We expect the increase in interest rates at the short end to continue, and repeat our forecast of a hike in December.

We also consider the size of the initial repo rate hike, which is back on the agenda this week following responses from the Riksbank Executive Board members to questions from journalists. Although we see few economic reasons to deviate from the standard 25bp steps, we do not preclude a smaller repo rate hike as a compromise solution.

Disclaimer

Claes Måhlén

Chief Strategist

Fixed Income

clma02@handelsbanken.se

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