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BNY’s Wee Khoon Chong note Sweden’s Riksbank appears comfortable with its current policy stance as inflation stays below target, leaving two hikes in the repo path mainly as a risk acknowledgment. Despite favorable real-rate dynamics, Swedish Krona (SEK) performance is constrained by valuation concerns and a high KIX level. Chong expects the Riksbank to avoid aggressive SEK-supportive action while CPI remains anchored.
Riksbank comfortable despite weak krona
“We believe Sweden’s Riksbank – along with the Swiss National Bank – is the most “at ease” with its current policy path as inflation remains well below target levels.”
“Given the favorable outlook on prices and real rates, SEK performance might leave much to be desired.”
“The KIX, Sweden’s import-weighted exchange rate index, remains at the upper end of its recent range, which would normally prompt the Riksbank to state that the currency is undervalued.”
“The June Monetary Policy Report envisaged the KIX at an annualized average of 116.18, which is already an adjustment to reflect a weaker SEK (i.e., import prices go up).”
“Swedish producer prices are clearly moving in tandem, but as long as CPI is anchored, we expect the Riksbank to hold off on being more assertive by bringing forward the two hikes currently in the repo path.”
