Riksbank prepares for further action

A possible rate hike by the US Federal Reserve would be a welcome helping hand for the Riksbank as it would alleviate appreciation pressures on the SEK. Still, inflation will be a hard nut to crack for the bank. If the bank sticks to its ambitions to lift inflation to or above 2%, it will have to bring in more heavy artillery.

"A further repo rate cut in September by 0.1% point to -0.45% is highly likely, while further rates cuts below that level are more and more likely, although not yet factored into our baseline scenario. In addition, an increase of the Riksbank's asset purchase programme beyond the SEK 135bn announced so far may be on the agenda too", says Nordea Bank.

Consequently, there are indications that Sweden is heading for a quite unique situation with the Riksbank cutting and the US Federal Reserve hiking policy rates, with the added spice that the Fed's policy rate already from the onset is higher than the Swedish repo rate. This despite the fact that resource utilisation is probably higher in Sweden than in the US.