Swedish krona has fluctuated in a narrow range against the euro since the mid-October 2018. Fundamentally, little has changed in December to alter the bias for EUR/SEK to fall further in the months ahead, said Lloyds Bank in a research report. While some indicators of activity had weakened, the central bank had tightened its monetary policy in December by hiking rates by 25 basis points. However, it kept its rates on hold during its meeting in February. Meanwhile, the market expects the Riksbank to further tighten the policy later in 2019, mostly in the third quarter.
“Given that domestic sentiment remains relatively buoyant, an improvement in the external environment could bring forward Swedish rate expectations”, said Lloyds Bank.
Current guidance from the ECB implies that policy rates will be on hold “through the summer”. Beyond that point, it is possible that the central bank will slowly begin to hike policy rates.
“We expect a 10bp increase in the deposit rate in December. Even so, compared to the euro area, Swedish policy normalisation looks likely to occur at a faster pace. As such, we forecast EUR/SEK to fall towards 9.80 by the end of the year”, added Lloyds Bank.
