Riksbank hikes its Rate by 100bps to 1.75% (exp. 75bps hike to 1.50%); Forecast indicates rate will be raised further in the coming six months

INFLATION

• Inflation is too high. It is undermining households’ purchasing power and making it more difficult for both companies and households to plan their finances. Monetary policy now needs to be tightened further to bring inflation back to the target.

ASSET PURCHASES 

• 
  The Riksbank's asset purchases will continue in accordance with the decision in June but are expected to cease at the end of the year. The asset holdings will thus gradually decrease through maturities and halve during the forecast period.

POLICY

• By raising the policy rate more now, the risk of high inflation in the longer term is reduced, and thereby the need for greater monetary policy tightening further ahead.

Via Riksbank

Reaction details (08:40)

• In wake of the above-expected (but not entirely against market pricing) 100bp hike by the Riksbank, immediate downside occurred in EUR/SEK dropping from 10.79 to a 10.72 session low before reverting back towards pre-release levels.


• Additionally, the 100bp hike has sparked broader hawkish price actions (note, some of this was in place already following hot German PPI). Specifically, sending Bund Dec'22 dropped to a 141.75 session low with USTs moving negative in tandem - action which has sent the German 10yr yield above 1.85% and the US 10yr yield above 3.50%. More broadly, Equities have waned from highs given the above hawkish price action.

Analysis details (08:45)

• A 100bp hike which surpasses consensus for a 75bp increase, but chimes with the around 60% probability via market pricing for a full point rise given the inflation narrative. While the announcement is clearly hawkish at face-value, and indeed implies further rate hikes, the Policy Path indicates a 'peak' around end-2023/start-2024, though this is perhaps not too surprising given the decision to frontload hikes.


• Elsewhere, the Bank confirmed QE amounts as announced in June, but adds that purchases will end in 2022.


• For the meetings ahead, we look for whether CPIF will average 7.8% for 2022 as forecast, compared to the most recent 9.0% print in August and for any guidance/commentary from officials around the new Policy Path for any diverging opinions on how much additional tightening is required.

20 Sep 2022 - 08:30- Fixed IncomeData- Source: Riksbank