Swedish Riksbank Rate 3.75% vs. Exp. 3.75% (Prev. 3.5%); forecast expects at least one more hike this year and increases pace of bond sales

Rate decision here 

FX hedging release here

Economic Commentary 

• Inflation is falling but is still far too high.


• New information, such as service prices rising unexpectedly rapidly and a weaker krona, indicates that inflation is declining more slowly than expected.

SEK

• The weak SEK is contributing to keeping inflation up, and there is a risk that the pass-through of the krona to price increases is larger in the current situation of high inflation.


• Considering hedging part of the foreign exchange reserves.


• The starting point for this is that the amount hedged will correspond to about one-quarter of the FX reserves.


• The FX reserves currently amount to around SEK 410 billion.


• The measure is aimed at reducing the Riksbank’s financial risks.

Balance sheet

• The Executive Board has also decided to increase the pace of government bond sales from SEK 3.5 billion to 5 billion per month with effect from September this year.

Rate Path

• The forecast is for the policy rate to be increased at least one more time this year.

Reaction details (08:45)

• EUR/SEK initially saw a spike higher from 11.7491 to 11.8076 on account of disappointment over just a 25bps and not a 50bps move. Thereafter, the pair moved lower to 11.7095 alongside the higher rate path and potentially on the currency hedging programme before then returning to pre-announced levels.

Analysis details (08:41)

• The decision to hike rates by 25bps was broadly in-line with expectations heading into the release, but did disappoint some calls for a 50bps move on account of recent SEK depreciation and hot inflation data in May.


• The decision was without reservation.


• The policy path now sees at least one more hike in 2023.


• On the balance sheet, the existing SEK 3.5bln/month pace of divestments was increased to SEK 5bln month.


• On SEK, the Bank acknowledged the impact of the soft SEK on inflation and announced a potential currency hedging programme.

29 Jun 2023 - 08:30- ForexImportant- Source: Reuters