In Q4, the Swedish economy expanded 4.5% y/y. Around half a percentage point came from migration, according to SCB. However, everything, such as net exports, private consumption and investments, particularly construction, performed well. Job growth is also developing accordingly in Sweden.

In January, the country’s inflation accelerated due to higher energy prices and indirect taxes. However, it slightly decelerated again in February. Higher prices on imported goods and services mainly led to the slightly higher inflation since early 2014. But the prices seemed to have started declining as the krona is now stronger in year-on-year terms.

The policy variable (CPIF) of the Riksbank was 1.1% in February. The central bank had lowered its repo rate to -0.5% last month. The Riksbank’s recent hints imply that it will further lower rates. Also, it will need larger divergence of growth and inflation from projection. According to Danske Bank, this does not suggest that increase in rate will come at a steeper of a rapid pace.

Conversely, the central bank has again highlighted that it cannot diverge much from the ECB. The Swedish central bank is likely to further extend QE by a quarter in April with purchases of nominal bonds with an average maturity of around five years, according to Danske Bank.

“Against this background, we stubbornly stick to the view that the Swedish yield curve is too steep from one year out and up to four to five years out. We expect it to correct gradually, meaning more of the steepness should be pushed out to the five- to 10-year segment”, says Danske Bank.