Summary:

  • Riksbank leaves interest rates along with bond buying program unchanged
  • Inflation and GDP forecasts for 2018 revised up, a first rate hike still seen in mid-2018
  • CPIF has been adopted as a formal target variable for monetary policy

The Swedish central bank decided to leave interest rates and its bond buying program unchanged, the decision was widely expected. The SEK has seen a relatively small decline following the statement even as inflation and GDP forecasts for the next year have been revised up. The statement illustrating the economic backdrop was more or less in line with the prior one.

link do file download linkGrowth and inflation projections for the following year have been revised up. Source: Riksbank

The Riksbank presented quite interesting forecasts especially those related to inflation. CPI for 2018 was revised up from 2% to 2.1% in turn CPIF (from today onwards this is the more important gauge) was bumped up from 1.7% do 1.9% in 2018 and from 2% to 2.1% in 2019 boding quite well in terms of achieving the inflation goal.

Furthermore, GDP forecasts for this and the next year were revised significantly up reflecting higher projections illustrated by the government along with larger budget surpluses. Otherwise, the unemployment rate is anticipated to bring down to 6.5%, whereas the repo rate should stay on hold until mid-2018 meaning no a shift compared to the prior statement.

One of the most notable issue concerned the new-adopted inflation target. The Riksbank announced that CPIF would be a formal goal variable for monetary policy. The Swedish central bank would also use a variation band of 1-3 per cent for outcomes for CPIF inflation to illustrate that monetary policy is not able to steer inflation in detail, but that inflation normally varies around the target, the statement said. Even as it’s not a huge change as the CPIF has been the Riksbank’s operational target variable for several years, it could be seen that the target will become more attainable going forward. Let us underline the change does not mean a so-called target range, so the Riksbank will be still aiming for 2%, however it would be more flexible accepting some deviations.

link do file download linkThe USDSEK is rebounding from a critical support zone placed at 7.90. Source: xStation5

Looking at a weekly chart of the USDSEK one could see a powerful downward trend which has taken place over the course of recent weeks. As for now, the pair could near 8.04 as a first resistance line. It could also constitute an opportunity to buy the SEK against the greenback as the economic outlook of the former seems to gather momentum.