**As seen in Risk In The Week report 05/05/24, subscribe at cablefxm.co.uk/reports
Back in March, the Swedish central bank left its policy rate unchanged at 4.0%, this was in line with economists' expectations. While inflation remains above the 2.0% target rate, it has slowed from the double-digit readings seen about a year ago. The central bank said it would be cutting rates in May or June, the flexibility could guard from any unexpected uptick in prices. Looking ahead, the Riksbank forecasts inflation to rise by 3.5% this year before slowing to 1.5% in 2025, growth is expected to rise marginally at 0.3% in 2024 vs Nordea's projection of 0.4%. We remind you that the Swedish economy has contracted every quarter since 2Q 2023, and the central bank would be pressured to start easing sooner if we don't see a substantial pick-up in output. Also, we will focus on any SEK comments as the FX factor could pose upside risks to inflation, the Swedish krona has lost 6.9% YTD vs the dollar and stands among the G10 worst performers this year.
Strategists at UBS noted economic data continue to look contractionary despite improving sentiment indicators, they added this could potentially see Riksbank starting its easing cycle in May. However, UBS said that the FX front remains an obstacle for the central bank to start cutting rates. UBS warned that skipping a rate cut in May could support the SEK but this may be short-lived as the move could be delayed to June.
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