11 Feb 2016
Riksbank remains vigilant on SEK – TDS
Paul Fage, Senior EM Strategist at TD Securities, has assessed today’s Riksbank decision of taking the repo rate further into negative territory.
Key Quotes
“The Riksbank returned to risk management, cutting the Repo Rate 15bps to -0.50%, suggesting they may be looking at things like a tiered interest rate scheme to allow rates to go more negative if needed, and also reaffirmed the readiness to intervene in the krona market if the currency appreciates too quickly”.
“They cited in their report a pace of 5% per quarter as a potentially large enough shock to create concerns on unhinging inflation expectations, which might serve as a rough proxy for their pain threshold”.
“Their bigger focus though, remains on keeping inflation expectations anchored. Running almost five years with inflation below target, they are looking through real GDP growth of 3-4% per year given the lack of significant, domestically generated inflationary pressures up to this point”.
“But given today’s decision was driven by their perceptions of the risks, rather than a forecast for a poor base case, if global uncertainty fades, the Riksbank is likely to once again return to the sidelines as long as SEK strength remains measured”.
Key Quotes
“The Riksbank returned to risk management, cutting the Repo Rate 15bps to -0.50%, suggesting they may be looking at things like a tiered interest rate scheme to allow rates to go more negative if needed, and also reaffirmed the readiness to intervene in the krona market if the currency appreciates too quickly”.
“They cited in their report a pace of 5% per quarter as a potentially large enough shock to create concerns on unhinging inflation expectations, which might serve as a rough proxy for their pain threshold”.
“Their bigger focus though, remains on keeping inflation expectations anchored. Running almost five years with inflation below target, they are looking through real GDP growth of 3-4% per year given the lack of significant, domestically generated inflationary pressures up to this point”.
“But given today’s decision was driven by their perceptions of the risks, rather than a forecast for a poor base case, if global uncertainty fades, the Riksbank is likely to once again return to the sidelines as long as SEK strength remains measured”.