The Riksbank is likely to act more in reaction to external monetary policy like the ECB, despite growth and inflation showing positive sign. Effect of external factors in a small open economy like Sweden is clearly unavoidable and the Riksbank is understandably on high alert.
The ECB is likely to announce a significant package of measures to add to their current easing. Hence, the pressure on the Riksbank to match their Eurozone colleagues will remain high. Contingent on the form of the new ECB package and critically on the reaction in EUR/SEK, the Riksbank may counter with another small rate cut of 10-15bp, argues BoFAML. If the Fed's rate hike comes in December, as it seems to be more likely, this would take some pressure off the Riksbank.
It is less urgency for the Riksbank to maintain the level of aggressive policy response that has characterized this past year, added BoFAML. The Swedish economy is performing well by getting support from accommodative policy. The economy also benefited from a pickup in the Eurozone via the trade channel.
