Riksbank Preview: Forecasts from seven major banks, positioning for its first rate hike

The Riksbank is set to announce its Interest Rate Decision on Thursday, April 28 at 07:30 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of seven major banks for the upcoming central bank's meeting. 

The central bank is expected to deliver a hawkish hold despite multiple hot CPIF readings. All eyes will of course be on the Riksbank's projected rate path profile.

TDS

“The upcoming Riksbank meeting is likely to see the Executive Board finally capitulate to the realities of high inflation. We expect an announcement to slow reinvestments from H2 and for the policy projections to show 2 or more rate hikes this year. We now expect hikes in Jun, Sep, and Nov. A hawkish Riksbank would help SEK short-term but don't expect much follow-through, given there is plenty of good news currently priced in.”

Nordea

“The bank cannot do much about the current elevated inflation but will underline that it stands ready to do what is necessary for inflation to be close to the 2% target in the medium-term. Several rate hikes from the Riksbank are thus in the pipeline, but it is an open question whether the repo rate will be raised already on Thursday. On balance, our main scenario is that the Riksbank will stay on hold in April and that the lift-off will take place in June. We see additional rate hikes in September and November, bringing the repo rate to 0.75% at year-end 2022. The rate path will be raised on Thursday, but will not match market pricing. The Riksbank’s announcement may be perceived as somewhat dovish compared to market expectations.”

ING

“There's an outside chance the first could come this week, though we think this meeting will be more about making the major forecast shifts required to lay the groundwork for higher rates – including a hefty upgrade to the inflation projections. We had previously pencilled in the first hike for September, though it looks increasingly likely that this could come in June.”

Danske Bank

“Although ECB has become a less important factor in a high inflation environment, we still believe the Riksbank does not want to deviate too much from its large neighbour and therefore marginally should support a June rather than April hike, given ECB most likely won’t be raising its target rate before September. That being said, we do not rule out an April hike, but would argue for a lower probability than the 80% seemingly priced in by the market. With regards to QE reinvestments, we expect volumes to be lowered from SEK37bn to SEK20bn in Q3, and reinvestments to stop at year-end. Given that 3 out of 6 governors in February voted for a reduction in volumes for Q2 to SEK27.5bn, we think they will agree on a somewhat larger reduction than suggested by the dissenters in February, on the back of latest developments.”

BBH

“We side with analysts and look for no change in rates this week, but markets should be prepared for a hawkish shift in the bank’s expected rate path that sets up potential liftoff at the June 30 meeting. Looking ahead, the swaps market is pricing in nearly 200 bp of tightening over the next 12 months followed by another 75 bp over the subsequent 12 months that would see the policy rate peak near 2.75%, which strikes us as much too aggressive.”

SocGen

“The Riksbank is likely to kick off a hiking cycle on Thursday. The money market is discounting a 90% chance of a 25bp hike and if we don’t see one, thinks it’s a sure thing in June.”

Swedbank

“We expect the Riksbank to raise the repo rate by 25 basis points to 0.25%. We also think it will taper its asset holdings beginning in the third quarter. A big upward revision of the inflation forecast is likely. The new repo rate path is expected to show a rate of approximately 1% in April 2023 and about 2% in the second quarter 2025.”

See:

• EUR/SEK to reach 10.40 by the summer fueled by hawkish Riksbank – ING
• EUR/SEK to challenge 2022 lows if Riksbank hikes rates in April – Danske Bank