The Riksbank cut by 25 basis points to 3.25% yesterday as expected. But what came after that was a massive dovish surprise, Commerzbank’s FX analyst Antje Praefcke notes.

Riksbank is now also focusing more on growth

“In summary, the Riksbank has moved to massive frontloading. Further, larger steps are possible in the short term up to the first half of 2025, more than previously signaled. The Riksbank is now also focusing more on growth, which is recovering more slowly than expected, whereas inflation risks have declined significantly. With these significant cuts, the Riksbank wants to ensure that inflation stabilizes close to the target.”

“Although the Riksbank does not formulate it this way, to me it means that it sees the following risk: that if growth remains weak or the economy even shrinks, inflation could fall even further and there could even be a risk of falling back into deflation.”

“In principle, the dovish surprise is a negative factor for the SEK for the time being. However, a falling real interest rate should, as the Riksbank's forecasts indicate, help the economy in the medium term. This should provide the SEK with underlying support. Therefore, a moderate appreciation of the krona remains possible in the coming quarters.”