Swedish Krona Dips As Riksbank Shifts Policy Stance

Talking Points

- Riksbank leaves rates at -0.5% as expected.

- But it surprises markets by extending its bond-buying program,

- It also shifts its forecast for an interest rate rise even further back, until mid-2018.

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The Swedish Krona dropped in early Thursday trade after the country’s central bank, the Riksbank, unexpectedly shifted its policy stance at its April meeting.

As was forecast, it left interest rates unchanged at -0.5%, but it surprised markets by announcing an extension of its quantitative easing program.

It will extend its monthly bond purchases by a further SEK15bn (€1.56bn) during the second half of the year. It has shifted its forecast for an interest rate rise even further back, until mid-2018.

This dovish tone has surprised markets, given that economic activity in Sweden has remained strong. Indeed, the central bank’s executive board was split over the decision. The Riksbank acknowledged that “economic activity in Sweden is increasingly strong”, but said it now thinks it “will take longer before inflation stabilizes around 2%”.

Without a substantial pick-up in prices globally, inflation is therefore most likely to continue to be a challenge for the Riksbank, so traders shouldn’t expect a hawkish turnaround in policy any time soon.

Here is the reaction in EURSEK.

Chart: EURSEK 15-Minute Timeframe (Intraday April 27)

The Krona also dipped versus the US Dollar.

Chart: USDSEK 15-Minute Timeframe (Intraday April 27)

Charts by IG

--- Written by Oliver Morrison, Analyst

To contact Oliver, email him at oliver.morrison@ig.com

Follow Oliver on Twitter @OPWMorrison

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