Riksbank cut rates on strong SEK – ING

FXStreet (Edinburgh) - Analyst Petr Krpata at ING Bank sees the possibility of further easing by the Riksbank following today’s rate cut.

Key Quotes

“We noted yesterday that recent SEK strength against the EUR was unlikely to sit well with the Riksbank and as such we saw a small probability that the central bank would announce an extension of its current QE programme at today’s non-ordinary Executive Board meeting”.

“The rate cuts / top up of QE is largely a response to strong SEK over the past weeks (and its negative impact of Swedish inflation prospects)”.

“We estimated that the Riksbank would have to embark on QE worth of SEK 200-250bn (accounting for the two rate cuts) to match the ECB balance sheet expansion. As such, we view today’s measures as insufficient (overall SEK 40bn QE announced vs SEK 200-250 bn needed) and expect the Riksbank to do more in coming months to prevent SEK strength”.

“The Riksbank statement itself is also biased towards a top up of QE as the next policy step, rather than further rate cuts (though additional cuts cannot be ruled out). Importantly, intervention in FX markets has been mentioned, in line with our view that the latest Riksbank policy measures present a “quasi soft mean-reverting EUR/SEK floor”.