SEK: Riksbank seen steady despite soft CPI – Commerzbank

Commerzbank analyst Antje Praefcke says weaker-than-expected Swedish inflation does not give the central bank of Sweden, Riksbank a reason to change its stance. The bank already projects inflation below target and is likely to look through temporary downside surprises, given offsetting Oil price risks. She adds that the Swedish Krona (SEK) will remain driven mainly by global risk sentiment rather than shifting rate expectations for now.

Soft inflation but policy unchanged

“The preliminary Swedish consumer price index data for March came in below expectations, falling to 1.6% year-on-year (expected: 2.2%) and to 1.1% for core inflation (expected: 1.5%) – partly due to base effects and the appreciation of the krona last year.”

“In its forecasts, the Riksbank anticipates a decline well below the target for both rates anyway, even if March is still a little too early for that.”

“And even if concerns were to arise that the decline in inflation rates might be too rapid and too sharp compared to their own forecasts (partly due to the planned VAT cut next month), the risk of rising prices caused by the oil price shock is likely to counteract these concerns.”

“The Riksbank can therefore, for the time being, look forward to the expected price rises resulting from the oil price shock with confidence, but will of course remain vigilant – as emphasised at its March meeting – depending on how the conflict ultimately unfolds following the ceasefire.”

“Therefore, in my opinion, there is no reason to expect a change in the Riksbank’s stance for the time being.”

“The Swedish krona remains, for the time being, at the mercy of market risk aversion, as demonstrated by the reaction following the announcement of the ceasefire with Iran; interest rate expectations currently play a (still) subordinate role.”

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)