FX CURRENCY WATCH
financed household spending, which in Sweden has reached one of the highest levels in Europe. To curb the rise in borrowing, tighter standards to access mortgages have been put
in place,
which combined with an increase in construction activity, has resulted in a drop of home prices. Should the trend continue, it would have a restrictive effect on growth, although the Riksbank believes it should be offset at least in part by stronger foreign demand. According
to
Governor Ingves, the decline in home prices should in any case prove temporary and of limited size.
At its latest meeting on 20 December, on the other hand, the Riksbank kept its guard high against inflation. While reasserting that the improvement of the growth picture has helped restore inflation to target, it noted that as price pressures at the international level remain generally modest, for inflation to stay in line with the target, monetary policy needs to remain expansionary. TTerefore, while confirming that the asset purchase programme would end in December, as originally indicated, it has announced that, in order to keep injecting abundant liquidity, redemptions and coupon payments in the government
24 FX TRADER MAGAZINE January - March 2018
bond portfolio would continue to be reinvested until further notice, and has decided to bring forward to the first half of 2018 – given the substantial amounts involved (SEK 65 billion) – the reinvestment in coupons and bonds maturing in the first half of 2019. Although the (net) asset purchase programme ended in December, bringing forward these reinvestments
would result in a temporary increase, in 2018 and at the beginning of 2019, of the Riksbank’s holdings of government bonds, guaranteeing still accommodative monetary conditions. Te central bank in any case confirmed that it is prepared to implement further monetary policy easing if necessary to stabilise inflation and safeguard the inflation target. For what concerns the exchange rate, it reasserted that – also to the end of preserving the inflation goal – it is still important that the krona does not appreciate too rapidly.
For what concerns interest rates, stable at -0.50% since February 2016, the central bank has confirmed it will resume hiking them at a gradual pace around the middle of next year, while leaving them in negative territory, and raising them above zero in 2019, with an expected point of arrival at the end of 2020 of 0.75%. Confirmation of the robustness of Swedish economic growth (which the Riksbank expects to accelerate to 2.9% next year from 2.5% estimated this year), and the progress made by inflation in returning to target (the Riksbank’s new forecast points to a CPIF inflation rate of 2.0% throughout the whole forecasting horizon, from 2017 to 2020), re p re s e n t a sufficient for
condition
the central bank to kick off – albeit gradually – the monetary policy normalisation process, starting at the beginning of 2018. In view of the start of the normalisation process and of the rate hike cycle in particular, we confirm our expectations for an appreciation of the Swedish krona over the course of del 2018, towards EUR/SEK 9.20 on a one-year horizon. Risks are skewed to the downside, i.e. the krona could prove weaker than expected, especially in the near term, especially in the event of house prices continuing to drop.
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76
