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PREVIEW: Riksbank rate decision (4th July at 0830BST/0330ET)

The Riksbank is expected to keep its interest rate unchanged at -0.50% with all analysts surveyed by Reuters expecting that to be the case. The central bank is also not expected to make any changes to its QE programme at the meeting.

The economy has been performing relatively well recently with inflation higher than the central bank expected, however, Nordea think this will be disregarded as they “will do their utmost to avoid inflation settling at too low levels”. Inflation remains below the Riksbank’s 2.0% target at 1.7%, however, an alternative measure, which will be coming into effect as the official measure later in the year, stands at 1.9%.

The recent hawkish turn by the ECB, as well as the BoE and Norges Bank, will also keep the Riksbank happier as SEK appreciation could slow somewhat. Therefore, standing pat at this policy meeting could be a relatively easy option.

There is some suggestion that they could follow some of their peers in turning less dovish and removing the slight easing bias. The last statement said, “The Executive Board is still prepared to make monetary policy more expansionary if the upward trend in inflation were to be tspaneatened and confidence in the inflation target weakened.”

However, they may be fearful that removing the easing bias – and the subsequent strengthening SEK – could jeopardise the recovery and keep inflation pegged lower.

Danske Bank say that if the easing bias is removed, any appreciation in the SEK is likely to be limited, given the widespread assumption that they will alter their language slightly. Danske adds that, “even if they do remove the easing bias they will not turn hawkish.”
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