Riksbank delivers and remains dovish – Commerzbank

The Riksbank delivered results at its meeting yesterday and cut its key interest rate by 25 basis points to 3.50%. The big question was how many further rate cuts it would signal for the rest of the year. It has become somewhat more convenient and talked about somewhat faster rate cuts than in June, notes Commerzbank currency analyst Antje Praefcke.

Krona wins easily after Riksbank

“This means that after yesterday’s interest rate cut, the Riksbank is still considering two to three cuts (ie 50 to 75 bps) by the end of the year. It therefore implicitly included a further rate cut for this year in its considerations. The main reason for this is that inflation is likely to stabilize close to the target and the outlook for the Swedish economy and abroad has deteriorated.”

“Anyway, the market was expecting another 75 basis points by the end of the year. So the Riksbank has almost completely complied with this vision. I believe that as soon as the next price and economic data indicates this, the Riksbank will move fully to 75 basis points. It could then adjust the interest rate path slightly lower at its meeting in September when the new forecasts are published.”

“What does the crown do about the interest rate decision? The market’s expectations were already somewhat higher than the Riksbank’s. There is virtually no potential for negative surprises. In this sense, it is not surprising that the krona managed to gain slightly after the Riksbank did not signal as many interest rate cuts as the market had expected.”