2 Jul 2014
Riksbank expected to cut interest rate to 0.5% - TD Securities
FXStreet (Łódź) - According to the TD Securities FX Research team, the Swedish central bank should lower its repo rate by 25bps to 0.5% tomorrow and leave the door open to further cuts, although not so far open as to signal a significant probability of further action this year.
Key quotes
"Once the Riksbank cuts rates to 0.50%, we think that it will leave around 5bps of rate cuts through Q1 2015, as the risk that inflation fails to pick up into the end of the year will leave the door open to further easing."
"While there is some speculation that the Riksbank could be cutting rates again as soon as September or October, if there were to be another rate cut back down to the crisis lows of 0.25%, we wouldn’t expect to see it until December or early 2015, as it will take that long for another significant disappointment in inflation to become apparent, given the way that base effects will play out."
"As far as rate hikes go, we think that the Riksbank is going to want to push rates off the floor as soon as it is prudent, as there are still serious worries about the level of household debt, and the Riksbank is still lacking any effective tools to deal with the problem."
"So we look for the Riksbank to push the first rate hike back by one quarter to around Q3-Q4 2015, but not any more than that as low rates create risks of their own."
"Market dynamics on the day will come down to how stubborn the market, which has been more right than the Riksbank on rate forecasting, wants to be in pricing in rate cut expectations in the near-term and pushing out tightening."
"While this should lead to a bias for 2s5s steepening and EUR/SEK lower on the day, convictions are low here until we actually see the turn in inflation."
Key quotes
"Once the Riksbank cuts rates to 0.50%, we think that it will leave around 5bps of rate cuts through Q1 2015, as the risk that inflation fails to pick up into the end of the year will leave the door open to further easing."
"While there is some speculation that the Riksbank could be cutting rates again as soon as September or October, if there were to be another rate cut back down to the crisis lows of 0.25%, we wouldn’t expect to see it until December or early 2015, as it will take that long for another significant disappointment in inflation to become apparent, given the way that base effects will play out."
"As far as rate hikes go, we think that the Riksbank is going to want to push rates off the floor as soon as it is prudent, as there are still serious worries about the level of household debt, and the Riksbank is still lacking any effective tools to deal with the problem."
"So we look for the Riksbank to push the first rate hike back by one quarter to around Q3-Q4 2015, but not any more than that as low rates create risks of their own."
"Market dynamics on the day will come down to how stubborn the market, which has been more right than the Riksbank on rate forecasting, wants to be in pricing in rate cut expectations in the near-term and pushing out tightening."
"While this should lead to a bias for 2s5s steepening and EUR/SEK lower on the day, convictions are low here until we actually see the turn in inflation."