Riksbank review: Tightening, not rushing

The Riksbank is likely to deliver a gradual tightening cycle, with the policy rate reaching 2.25% in February and then remaining at its peak.

• The Riksbank gave no new forecasts or rate path, while stating that further increases are likely if inflation and economic activity follow the expected outlook.
• Its September path implied a 16 basis point tightening bias before the latest meeting, around 3 basis points before December, and a 40% probability of a 2.25% policy rate in February.
• CPIF inflation excluding energy was 0.2 percentage points below the Riksbank’s September forecast, while Nordea expects inflation to undershoot again in October and rise thereafter.
• The Riksbank identified the weak krona as an inflation risk, while Nordea sees the recent SEK strengthening as important because it reduces inflation pressure.
• The central bank will borrow SEK 200 billion through the National Debt Office to finance part of its foreign currency reserves, replacing existing FX swaps over 12 to 18 months.

Takeaway: Nordea expects rates to stay unchanged in December, rise to 2.25% on 16 February, and peak there, with higher inflation forecasts creating upside rate risks and weaker euro-area growth limiting pressure on the krona.