Swedish Rate Wrap - FI, FX, Credit and Commodities Strategy - Handelsbanken Capital Markets

 

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Swedish Rate WrapEnergy fuels interest rate hikes

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Following a period with all eyes on the Italian crisis, attention is now turning toward the far north and the ECB meeting in Riga. Italy could actually induce a hastier decision on tapering the QE programme. We repeat our belief that the programme will come to an end in December this year.

For the Riksbank, most indications suggest a rate hike before year-end, in line with the repo rate path. Inflation outcomes in CPIF terms will be substantially higher than Riksbank forecasts, given current energy prices. Even adjusted for that factor, we believe inflation will land at or above the Riksbank's path, suggesting that the market will gradually price in a greater likelihood of a rate hike. Higher inflation should result in a widening of Swedish bond yield spreads relative to Germany.

Disclaimer

Kiran Sakaria

Junior Strategist

Foreign Exchange and Fixed Income

kisa02@handelsbanken.se

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