SEK: Inflation risks and rate path debate – Commerzbank

Commerzbank’s Antje Praefcke notes that Swedish inflation data may gain importance as core inflation fell to 1.7% and could drop further below the 2% target. Deputy Governor Per Jansson has opened the door to a March rate cut, contrasting with Riksbank guidance for unchanged rates. This divergence poses downside risks for SEK if market rate expectations shift.

Inflation path and Riksbank expectations

"However, tomorrow's figures could attract a little more attention, given that the core rate fell to 1.7% year-on-year in January (headline rate 2.0%). Due to base effects, the rate could fall even further below the inflation target of 2% in the coming months, and possibly the headline rate as well."

"This prompted Riksbank's Deputy Governor Per Jansson to state in January, and again recently, that he would not rule out voting for an interest rate cut in March if, in his opinion, the risk of inflation remaining below the inflation target became too great."

"The Riksbank has actually been signaling unchanged interest rates in its interest rate path until the end of the year and then assumes that the policy rate could even rise again."

"But market interest rate expectations could change, especially if the next data for February (due at the beginning of March) also come in below the inflation target."

"In this respect, there are downside risks for the SEK if the market's assessment of future interest rate developments changes."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)