Inflation in Sweden came in lower than expected on Tuesday. However, the SEK seems to have taken little notice. Economists at Commerzbank analyze Krona’s outlook.
Krona appears well-equipped to absorb unchanged rates in the next Riksbank meeting
The market’s adjusted interest rate expectations should ensure that it will not come as a big surprise if the Riksbank uses the downward surprise in inflation figures as an opportunity to leave its interest rate unchanged for the time being at its next meeting, given the weak economic outlook. In the short term, the Krona currently appears well-equipped to absorb such a setback, given the FX interventions.
In the medium term, however, this could be a mistake if the October inflation figures turn out to be an outlier. After all, inflation in Sweden is much more persistent than in other developed countries, and last month’s figure surprised on the upside. If the Riksbank does not react decisively, the Krona is then likely to come under pressure again.
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