As the turbulence in the banking sector has abated, the market has priced in a higher interest rate peak, which currently indicates that the Riksbank will reach 4 per cent at its November meeting. We still consider that the market is pricing in too rapid rate cuts after this, beginning as early as the February 2024 meeting. High inflation continuing will compel the Riksbank to let the repo rate remain at 4 per cent until the meeting in June next year, when we foresee the start of a rate-cutting phase that is moderate and more gradual than the market’s pricing reflects. Thus market pricing deviates more and more from our forecast, the further out on the curve we go.
When the Riksbank launched its programme of active QT, in other words selling some of its holdings in government bonds, a clear hope was expressed at the February meeting that this would lead to both higher long-term rates and a stronger krona. However, the krona’s fate is still largely determined by expectations of relative monetary policy. Figure 3 illustrates the difference between 2-year yields in SEK and EUR, and EURSEK.
We do not believe the Riksbank had planned to increase its volume of sales as early as the April meeting (from the original SEK 3.5bn). Thus we do not expect any new announcements regarding QT and the Riksbank’s balance sheet at the April meeting.
- Handelsbanken Strategy
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