SEK: Scope for moderate additional gains in the coming months – Rabobank

Rabobank analysts see scope for moderate additional gains in the SEK in the coming months even as SEK was not able to hold onto its initial gains vs. the EUR made on the back of the October policy announcement.

Key Quotes

“Over the past 4 or so years, the costs of maintaining a negative interest rate regime have become more apparent. In Sweden this is most notable in path of house price inflation and in the high level of household debt.”

“While Governor Ingves has been associated with the need to maintain a very accommodative policy, his has lost a key ally from the dovish camp with Deputy Governor Jocknick moving to the ECB. Her replacement, Breman, is thought to be a hawk, although little is known about her potential voting intentions.”

“Although the Riksbank are poised to raise rates, the growth outlook for Sweden has deteriorated. In August the European Commission forecast that in 2020 Swedish growth will be slower than all but four of the other 28 EU nations. In the minutes of its October meeting, the Riksbank forecast that “there is still uncertainty over the economic outlook and inflation prospects, both in Sweden and abroad”. As a consequence of this the Executive Board have signalled that it may be 2022 before the repo rate is adjusted any higher than the zero level.”

“For now the Riksbank will be hoping that the net gains for the SEK vs. the EUR over the past month are not extended too far, since a bout of downside pressure on the EUR could seriously endanger the board’s hope to keep the repo rate out of negative territory. We expect modest gains for the SEK and look for a move towards EUR/SEK 10.65 in the coming months.”