BUZZ-COMMENT-What can we expect from the Riksbank and the SEK next week

Reuters · 09/15/2023 07:39
BUZZ-COMMENT-What can we expect from the Riksbank and the SEK week

- Next week's Riksbank policy meeting will be significant for both Swedish monetary policy and the Swedish crown. A 25-basis-point rate hike to 4.0% has been factored in by the market so the SEK will something more from the Riksbank if it is to recover.

Speculation that the central bank will hike a further 25 bps in November has significantly impacted on the weak SEK.

The Riksbank has acknowledged that inflation is unlikely to come down fast enough if the crown remains weak. The bank has relied on rate hikes to tame currency weakness, but it will a further message of intent to underline its efforts to stop the currency rot.

Back in June, the Riksbank announced that it was considering hedging part of its foreign currency reserves, which would mean buying the SEK. Amounts would be large and again the market will have discounted such a move, but confirming the decision to hedge reserves while raising its benchmark interest rate could underline its commitment to strengthen the SEK.

The Riksbank has stressed that hedging reserves is a monetary policy measure, but the market could choose to interpret such action as a crown support initiative.

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(Peter Stoneham is a Reuters market analyst. The views expressed are his own)