Unchanged at 2.0% as expected, keeping downside bias

As widely expected, the Riksbank kept the policy rate unchanged at 2.0% and kept the downside bias from the June meeting, saying in the report that it 'still sees some probability of a further interest rate cut this year'. This formulation is very similar to the one used in the June MPR ('some probability of another cut this year'). Today's report does not contain any new forecasts but recall that the June MPR policy rate path had 12bp of cuts evenly spread across the remaining four meetings, meaning that there are no clear signals for a specific meeting for a potential cut. Given that the communication around the timing is still uncertain, the August print ahead of the September meeting (released 4 Sep) is likely a key variable going into the next meeting (when the Riksbank will provide new forecasts).

The Riksbank is seemingly keeping a soft stance and looks through the higher-than-expected inflation prints over the summer, saying 'the upturn is assessed to be due to temporary factors, and several indicators support the view that inflation will fall back to 2 per cent going forward'. Thus, the Riksbank seem to hold onto the June forecast for inflation, but it also warns that: 'it is important that it soon begins to fall back. Otherwise, there is a risk that the elevated inflation will affect inflation expectations and companies' price-setting behaviour, so that inflation becomes persistently high.'

In our latest forecast (Swedish inflation forecast, 14 August), core inflation is expected to be a qround 3.0% y/y for the remainder of the year, which should complicate things should the Riksbank make a similar assessment. The Riksbank's June MPR forecast had 2.7% y/y for CPIFxE for August, and should the outcome be closer to the Riksbank's forecast (which also indeed would show that June-July prints were driven by temporary factors), the door could open for a move already in September.

The minutes from the meeting will be released on 26 August.

FI and FX. As the outcome and communication were much in line with expectations, the market reactions were small, and the September meeting is still priced close to 50/50 (11bp) and November 10bp. There was a muted response in EUR/SEK, which moved slightly lower within the 11.12-11.22 range. As such, cheap short-dated implied vols edged even lower. We still have rates-implied fair value around 11.15 and we see EUR/SEK as a strategic buy on dips. 

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