Nordea predicts further cut at Riksbank meeting

Sweden’s central bank is no stranger to surprises, and while most analysts think it will stay on hold this Thursday, Nordea is bracing for yet another rate cut and an extension of the bond buying programme.

Torbjörn Isaksson, chief analyst at Nordea Markets, says the “broken positive inflation trend” will force a 0.1 percentage point cut in the repo rate to -0.6 per cent, and a SEK30bn expansion to QE.

Sweden’s record low rates have already sent the krona to 6-year lows against the euro, helped by automated traders taking advantage of the deeply negative rates to use it as a funding currency.

The economy has been growing at a healthy pace, with the unemployment rate falling to an eight-year low last week, prompting numerous analysts and even government ministers to say the currency has become undervalued.

But, with limited pay rises keeping domestic inflation subdued, Riksbank governor Stefan Ingves has encouraged the drop as a way to import inflation toward the bank’s elusive 2 per cent target.

Though they’ve avoided joining Nordea in predicting an outright cut, Rabobank and Goldman Sachs have also said the result of Thursday’s meeting isn’t as clear-cut as the forecast consensus suggests.

In a note yesterday, Goldman said the Riksbank is more likely to provide a dovish surprise than Norway’s Norges Bank, which also meets on Thursday, and said the krona is unlikely to strengthen until inflation accelerates.

Rabobank’s Jane Foley added today that the Riksbank is unlikely to “reel in its dovish tone”, pointing to the bank’s recent declaration that it is “highly prepared to make monetary policy even more expansionary if necessary”.

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