Riksbank makes massive frontloading – Commerzbank

The Riksbank cut 25 basis points to 3.25% yesterday, in line with expectations. But what followed after that was a huge surprise, notes Antje Praefcke, FX analyst at Commerzbank.

The Riksbank is now focusing more on growth

“In short, the Riksbank switched to massive forward feeding. Moreover, bigger steps are possible in the near term until the first half of 2025, more than previously signaled. The Riksbank is now focusing more on growth, which is recovering more slowly than expected, while inflation risks have fallen significantly. With these significant cuts, the Riksbank wants to ensure that inflation stabilizes close to the target.”

“Although the Riksbank doesn’t put it this way, to me it means that it sees the following risk: if growth remains weak or the economy actually shrinks, inflation could fall further and there could even be a risk of a return to deflation. .”

“Fundamentally, the dovish surprise is a negative factor for the SEK for now. However, a fall in the real interest rate should, as the Riksbank forecasts indicate, help the economy in the medium term. This should give SEK basic support. Therefore, a moderate appreciation of the krona remains possible in the coming quarters.”