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The Sweden Central Bank (Riksbank) is set to announce its policy decision on February 15th. At its December policy meet, the Riksbank extended its asset purchase programme and said that it will buy additional SEK 30 billion in bonds by mid-2017.
The minutes published in January revealed that three of six board members spoke out against giving an outlook that signalled another rate cut. Since the Riksbank’s meeting in December, both inflation and resource utilization have been slightly higher than expected by the central bank.
Positive inflation developments since the last meeting are offset by SEK strength. In December 2016, Sweden's annualized CPI inflation stood at 1.7 percent, edging closer to Riksbank's target of 2 percent. However, the Swedish krona has appreciated more than projected since December. A quicker strengthening of the currency is undesirable by the central bank, which should likely see the repo rate forecast unchanged.
Markets are likely expecting some possibility of upward revisions on the repo rate forecast. If the Riksbank disappoints market expectations, we could likely see EUR/SEK spike higher. The pair was trading an extremely tight range ahead of tomorrow's central bank meeting. Technical indicators on daily charts are also inconclusive.
