Riksbank tentatively on hold although risks of further easing have increased

The Sweden data over the summer have been strong. Furthermore, inflation is on an upward trend, as acknowledged by Riksbank's First Deputy Governor Kerstin af. Jochnick recently. Moreover, monetary conditions since the July Riksbank meeting have eased further, as the SEK has depreciated and real rates have moved lower. 

"The Riksbank is likely to keep its repo rate unchanged at -0.35% at the September meeting but possibly extend its SEK135bn QE program due to expire by year-end. The Riksbank will acknowledge that the recent data strength and stability in inflation dynamics merit a pause in the easing cycle at this juncture", says Barclays. 

This is illustrated by our newly created Monetary Conditions Index (MCI), which is now at its easiest level since the Global Financial Crisis. Instead, the Swedish economy remains on a solid footing and in a significantly better state than during the global financial crisis, implying that such easy conditions are unjustified. 

"Having said that, further Riksbank easing cannot be ruled out, if the recent decline in energy prices or concerns about global growth and disinflationary pressures intensify, especially if trading partners' central banks also ease policy. All in all, material EUR/SEK depreciation is expected from current levels but prefer owning downside through options", added Barclays.