Riksbank cuts its Rate by 25bps to 3.75% (as expected by a majority of respondents); Policy rate is expected to be cut two more times during H2 if inflation outlook cuts (bringing total 2024 cuts to 3 vs prev. guided just over 2)

POLICY

• The risks that may cause inflation in Sweden to rise again are primarily linked to the strong US economy, the geopolitical tension and the krona exchange rate.


• The adjustment of monetary policy going forward should therefore be characterised by caution, with gradual cuts to the policy rate.


• When inflation approaches the target while economic activity is weak, monetary policy can be eased.

INFLATION

• Information received since the Monetary Policy Report in March reinforces the outlook for inflation remaining close to the target also in the longer term.


• Inflation expectations are firmly anchored and wage increases are moderate.

Via Riksbank

Reaction details (08:47)

• EUR/SEK spiked higher from 11.691 to 11.723 on the rate cut, driven by the unwinding of bets for a hold and guidance for two more 2024 cuts.


• Thereafter, EUR/SEK pared to 11.70 as the guidance implied that the June meeting will not see a policy adjustment (i.e. the most dovish potential scenario did not occur; reminder, SEB's investor survey looked for a +13 figure move to EUR/SEK if there was a May cut and a significantly more dovish rate path).


• Ultimately, EUR/SEK has reverted higher and is holding around the 11.730 mark just off the 11.7366 session high.


• Elsewhere, the announcement sparked some modest but very shortlived upside in EGBs.


• Support was also seen for the real estate sector with SBB shares up 7% on the session.

Analysis details (08:41)

• In short, a slightly more dovish than expected Riksbank.


• The Riksbank cut rates by 25bp, in-line with the base case heading in with market pricing ascribing around an 80% chance to such an outcome beforehand. Easing which was justified by domestic developments as the inflation outlook is seen remaining close to target and economic activity generally is weak.


• Ahead, the Riksbank looks for two more cuts in 2024, i.e. three 2024 total reductions vs the March MPR's guidance for just over two cuts (end-2024 policy rate of 3.44% in the MPR). Interestingly, the language used points to the two cuts occurring in H2 and as such implies that the June MPR meeting will not see a policy adjustment. A nuance which was seemingly behind the brief paring in EUR/SEK upside after the announcement.


• Reminder, press conference with Governor Thedeen from 10:00BST onwards.

08 May 2024 - 08:30- Fixed IncomeImportant- Source: Riksbank