SEK: Riksbank will struggle to maintain dovish stance - ING

The Riksbank announces its latest monetary policy decision and releases its Monetary Policy Report at 0930CET today and if any central bank merits a Damascene conversion from ultra-accommodative monetary policy, it is the Riksbank, according to the research team at ING. Containing SEK strength will be a struggle for Riksbank, they further add.

Key quotes

“The Riksbank has consistently disappointed expectations of a shift to policy normalisation. The most recent example was 26 April, when the Riksbank chose to extend QE into 2H17 – albeit with half the Executive Board dissenting. Continuing to hang its dovish position on external political challenges will be tough now.”

“Even though 1Q17 Swedish GDP did disappoint a little, inflation has been running significantly firmer than the Riksbank’s forecasts. Importantly longer term inflation expectations are starting to push above the Riksbank’s 2% target.”

“Since the last Riksbank meeting, greater confidence has emerged that the Eurozone has moved onto a sustainable growth path. And Macron’s success in both presidential and parliamentary elections in France should alleviate some of the concerns over external political uncertainty. That said, the Brexit challenge remains.”

“Very dovish by nature, we could see the Riksbank emphasise the negatives of slow growth in 1Q17 or lower oil prices prompting a downward revision to the headline inflation story. Yet we expect the Riksbank to remove the threat of a further cut in the -0.50% policy rate from its forecasts and perhaps bring forward the timing of its first hike from 2Q/3Q18.”

“Following less dovish comments from the ECB and BoE last week, the SEK has already responded to the prospect of a less dovish Riksbank today. Yet the Riksbank will struggle to contain SEK strength and our 12m EUR/SEK forecast of 9.00 may be met sooner than expected.”