Sweden’s Riksbank likely to cut rate tomorrow – SEB

The key repo rate issued by the Swedish central bank is likely to be cut by 25bps, according to SEB.

That decision from bank governor Stefan Ingves (pictured) and his colleagues is expected tomorrow, Thursday,  following a spate of poor macroeconomic news, which sharply increased expectations for a cut.

“Interestingly, as many as 63% of respondents believe the Riksbank will announce a 25bps rate cut this week. While the result of the poll is in line with SEB’s official rate cut forecast, it stands in contrast to our investor survey released last week in which only 7% of participants expected a September rate cut,” SEB said in a note.

“Since then, weaker than expected macro data has substantially increased rate cut expectations with the market pricing currently indicating a 58% probability for a rate reduction tomorrow. In the event that the Riksbank lowers rates by 25bps, respondents of our internal survey predict that the 2y yield will decline by 2-7bps and EUR/SEK rise by 4-8 figures, depending on whether or not the Riksbank signals a further rate cut. If however it leaves the repo rate unchanged, respondents estimate that the 2y yield will increase by 4-15bps and EUR/SEK decline by 2-11 figures, again depending on the repo rate trajectory.”

In Sweden today, Dagens Industri warned readers that any cut will only be felt marginally in terms of home loans. Typically only half the effect of any rate cut is passed on by lenders, it said.

The residential housing market has also been under a loan to value cap imposed by the financial regulator last year following concerns that consumers were over-leveraging their finances.

Cuting the rate to push down the strong SEK would be seen as a benefit to Sweden’s exporters, but it may not be enough. Dagens Industri also carries a story about Volvo Cars, which has reported a collapse in first half sales because of the eurozone crisis hitting its key European markets. After tax the business reported a SEK-254m loss against a SEK1.2bn gain in the same period last year. The company said European markets have proven themselves unable to recover from the downturn in 2007-8.

 

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