Swedish Riksbank hikes rates, lifts bond sales amid krona weakness

Swedish Riksbank hikes rates and lifts bond sales amid krona weakness

Sweden's central bank has slowed the pace of rate hikes as it walks a fine line between bolstering the ailing krona and avoiding more damage to the fragile housing market. We think another hike is likely in September, but that might be the last.

 

Sweden’s central bank has hiked rates by another 25 basis points amid ongoing concerns about the weak krona. On a trade-weighted basis, SEK is roughly 3% weaker than the Riksbank had been predicting for the second quarter on average in its last set of forecasts from April.

 

On paper, there’s nothing hugely surprising about today’s decision, though repeated warnings about currency weakness from Governor Erik Thedeen meant there was a tail risk of another 50bp hike this month, not least because the Riksbank meets only twice more this year. That said, the central bank has opted to increase the pace of its sales of government bonds, from SEK3.5bn a month to 5bn, and by the Riksbank's own admission, this is partly designed to help support the krona.

 

Unsurprisingly those concerns about a weaker currency, coupled with some resilience in both economic activity and house prices, have also led the committee to upgrade its assessment of future rate hikes. The bank is now forecasting one more hike later in the year, and a 20% chance of another, which would take the policy rate to 4.25%. Unlike at the last meeting, there appears to have been no disagreement on the policy decision among the committee.