Riksbank insurance policy: Expect another small rate cut– BAML

FXStreet (Barcelona) – Myria Kyriacou, FX Strategist at BofA-Merrill Lynch, sees the possibility of a 10-15bp rate cut by the Riksbank in its July meeting to avoid excessive SEK strength.

Key Quotes

“With reduced summer liquidity upon us, the pace of purchases will likely be adjusted to account for this. With this in mind and despite the encouraging inflation figures, we believe the Riksbank will deliver a 10-15bpcut in the repo rate at the July meeting to avoid excessive SEK strength and reinforce their focus on bringing inflation back to target. The purchase program size will likely remain unchanged, but expect renewed emphasis on further actions that the Riksbank can take.”

“The risks around our call are for under- rather than over-delivering from the Riksbank, and indeed rates markets are not pricing in a cut at time of writing. The Bank could choose to wait for more clarity on Greece and the ECB response, in which case we should see SEK strengthen. If so, however, this will only delay easing to the September meeting, with the possibility of an inter-meeting cut if SEK strengthens significantly, threatening the momentum of improvement in the inflation outlook.”

Myria Kyriacou, FX Strategist at BofA-Merrill Lynch, sees the possibility of a 10-15bp rate cut by the Riksbank in its July meeting to avoid excessive SEK strength.

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