Barclays says - "We expect the Riksbank to ease policy on Wednesday, cutting its repo rate by 15bp to -0.4% and increasing the size of its government bond purchases by SEK40-50bn."
Given current market pricing of around a 2bp cut in next week's meeting, the SEK and short-term rates are likely to come under considerable downward pressure. If the Riksbank does not deliver a cut and a subsequent SEK rally is sustained, there is a possibility of FX interventions by the Riksbank, but there is a relatively low probability to the use of such policy tool.
"Looking ahead, we think that significantly more accommodative policy is unlikely, given the existing measures, the strong growth outlook and the recent rebound in inflation." adds Barclays
On the data front, the market is likely to focus on the ETS (Tuesday), which is expected to rebound to 102.1, once again confirming positive economic fundamentals. Elsewhere, retail sales data (Tuesday), are expected to increase by 0.2% m/m, flat from February.
Barclays recommends being long USD/SEK.
