28 Apr 2015
Riksbank could stay on the sidelines tomorrow – JP Morgan
FXStreet (Edinburgh) - In the opinion of analysts at JP Morgan, the Riksbank could refrain from either lowering the repo rate or expanding its current QE programme at its meeting tomorrow.
Key Quotes
“The near-term outlook for SEK is dominated by the Riksbank meeting on Wednesday”.
“Riba rate futures price a 5bp cut for this meeting but certain analysts are calling for as much as 25bp in additional easing”.
“On top of this the widespread expectation is for an extension of the Riksbank's balance sheet programme, most likely through additional government bonds purchases (the existing SEK50bn programme will be completed next month), with some discussion of private sector purchases and/or credit easing through a BoE-style FLS programme”.
“The wildcard that the Riksbank has refused to rule out is direct FX intervention”.
“What is striking about this debate is that few, if any, analysts believe that additional easing is at all justified, but that having engaged in aggressive easing the Riksbank is obliged to continue on this path otherwise it risks a sharp repricing both of domestic yields and the currency”.
“While there is some merit in the argument that the Riksbank needs to ease to preemptively counteract the strengthening in SEK that would occur were it not to act, it is worth noting how weak SEK already is, compared not only to the mid-March ‘emergency’ rate cut (3% weaker) but also the Riksbank’s current projections (6% weaker than its end-2015 forecast and 10.5% weaker than the end-2016 forecast)”.
“Our low-confidence call is for no change (but with the Riksbank stressing its willingness to act at any time on a strengthening in SEK)”.
Key Quotes
“The near-term outlook for SEK is dominated by the Riksbank meeting on Wednesday”.
“Riba rate futures price a 5bp cut for this meeting but certain analysts are calling for as much as 25bp in additional easing”.
“On top of this the widespread expectation is for an extension of the Riksbank's balance sheet programme, most likely through additional government bonds purchases (the existing SEK50bn programme will be completed next month), with some discussion of private sector purchases and/or credit easing through a BoE-style FLS programme”.
“The wildcard that the Riksbank has refused to rule out is direct FX intervention”.
“What is striking about this debate is that few, if any, analysts believe that additional easing is at all justified, but that having engaged in aggressive easing the Riksbank is obliged to continue on this path otherwise it risks a sharp repricing both of domestic yields and the currency”.
“While there is some merit in the argument that the Riksbank needs to ease to preemptively counteract the strengthening in SEK that would occur were it not to act, it is worth noting how weak SEK already is, compared not only to the mid-March ‘emergency’ rate cut (3% weaker) but also the Riksbank’s current projections (6% weaker than its end-2015 forecast and 10.5% weaker than the end-2016 forecast)”.
“Our low-confidence call is for no change (but with the Riksbank stressing its willingness to act at any time on a strengthening in SEK)”.