EUR/SEK Jumps as Riksbank Cut Rates Further Into Negative Territory

Talking Points:

• The EUR/SEK higher by more than 1.30% on the news
• Riksbank cuts repo rate to negative 0.50%, more than expected
• The Bank says it’s ready to do more if needed

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The EUR/SEK skyrocketed by more than 1.30% (at the time this report was written) after the Executive Board of the Central Bank of Sweden (The Riksbank) decided to cut the Repo rate by 0.15 percentage points to negative 0.50%, more than the consensus forecast of a 10 percentage points cut. The Repo rate is the rate of interest that banks can use to borrow or deposit funds at the Riksbank for a period of seven days.

Looking into the press release, the central bank said the economy continues to strengthen but inflation is expected to be lower than previously forecasted in 2016. The bank decided to cut rates to support inflation so that it will stabilize at the 2% target in 2017. The bank also announced that they will continue QE in line with their October plan. Perhaps most interestingly the Riksbank stressed its willingness to make monetary policy even more expansionary if needed. The bank clearly signaled the Swedish Krona as a source of concern saying that Swedish monetary policy must relate to other central bank’s expansionary measures or the Swedish Krona might strengthen which would make it harder for inflation to stabilize at 2%.

DailyFX Currency Strategist Christopher Vecchio previously mentioned that to prevent appreciation of the Krona versus the Euro, the Riksbank moved in near-lockstep with the European Central Bank in loosening monetary policy.