Hawkish Guidance From Riksbank

Riksbank surprised markets today with an unexpected 25 basis points rate hike. Main interest rate increased from 0.00% to 0.25%. However, this is not the end as the Bank provided hawkish guidance, leading SEK to strengthen 1% against the euro.

Key takeaway from policy statement

  • Bank will cease purchases of Treasury bills, starting today
  • Asset purchases will start to be reduce in the second half of 2022
  • 2 or 3 more rate hikes likely in the remainder of 2022
  • Main repo rate unlikely to increase beyond 2% over the next 3 years
  • Inflation to remain high in near-term
  • 2% inflation target expected to be met in 2024

EURSEK took a hit following the Riksbank decision and is currently testing 61.8% retracement of the upward move started at the end of 2021. It should not come as a surprise as Riksbank made a major hawkish U-turn. Back in mid-February, Riskbank said that the first rate hike will come slightly earlier than expected… in the second half of 2024. Meanwhile, the first rate hike was delivered 2 and half months later, and the Bank warns that more tightening is coming this year.

Source: xStation5

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