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🏦🇸🇪Cable FX Macro Weekly Note: Riksbank November Policy Decision

**As seen in Risk In The Week report 11/17/23, subscribe at

The last time the Riksbank met, the policy rate was lifted by 25Bps to 4.0% and warned further increases could be necessary. Apart from the decision, there were two major announcements; an increment of policy meetings next year and the start of an FX hedge programme. The central bank is attempting to reduce currency risk in reserves by selling both EUR and USD, they said the hedging operations will be fully complete in 4-6 months. More recently, data has shown that the Riksbank’s FX hedging program is selling an average of 567 Mln USD per week. The Riksbank left its 2023 CPIF forecast unchanged at 5.9% and revised its 2024 projection higher to 2.5%. On growth, the central bank expects this year’s output to contract by 0.8% and next year to fall by 0.1%, the latter is less optimistic than the economist consensus forecast of +0.5%.

Analysts at SEB expect the central bank to lift rates one more time this year to 4.25%, they also call for a 10bps lift in February. SEB sees the Riksbank revising its 2023 and 2024 CPIF forecasts higher while they call for a downside in the GDP projection. Overnight index swaps show markets are effectively pricing an additional 10bps of tightening by February. Looking ahead, implied rates in the 1y tenor show a net reduction of 55bps, this is less than what is currently seen for the ECB. Lastly, as we head into the meeting, the EUR/SEK rate has traded heavily and is in line with risk sentiment, recent Riksbank commentary has noted the krona as undervalued.



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