The Swedish krona dropped today after Sweden’s central bank kept its benchmark repo rate unchanged and pushed back the planned rate hike to a later date.
The Riksbank left its main interest rate at -0.5%, in line with market expectations. The central bank’s statement was rather optimistic, saying:
Economic activity in Sweden is strong and inflation is close to the target of 2 per cent.
The bank added that it may be possible in the future to reduce monetary accommodation as a result:
If the economy develops as expected, there will soon be scope to slowly reduce the support from monetary policy.
In fact, the Riksbank provided more specific outlook in terms of the timing for the possible rate hike:
The forecast for the repo rate indicates that it will also be held unchanged at the monetary policy meeting in October and then raised by 0.25 percentage points either in December or February.
The fact that a hike at the next meeting is highly unlikely caused the sell-off of the krona. Some analysts said that the market’s reaction was unwarranted considering that the mentioned increase by 25 basis points is higher than the 10-points increase, which markets were anticipating.
USD/SEK rose from 9.0489 to 9.1020 as of 18:48 GMT today. EUR/SEK advanced from 10.5205 to 10.5813, touching the high of 10.6070 intraday.
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