Risk Bank still likely to reduce rates in spite of inflation comeback

Swedish Krona is cheering higher today as report showed that inflation returned in May. However it is too early to say the deflationary pressure have subsided. Prices dropped by -0.2% y/y in April after positive inflation in February and May.

Swedish krona is currently trading at 8.24 against dollar, up 0.35% today so far.

Sweden's Risk bank is maintaining easing stance and likely to reduce rates further.

• As of now, interest rate stands at -0.25% effective from May 6. It had taken the decision in its 29^th April meeting. Next meeting is scheduled at 1^st July and policy announcement will be on 2^nd July. Bank has also extended asset purchase target to SEK 40-50 billion.

Since inflation still remains subdued and very close to deflationary zone, Risk bank is likely to continue providing policy stimulus.

Though the inflation reading is very encouraging, it still far from 2% policy target.

Swedish krona is currently trading at 8.24 against dollar. Krona has appreciated almost 5% against dollar in last three months, however still down about 5.8% so far this year.

Krona appreciation would be gradual and moderate in spite of USD weakness as monetary policy remains divergent in these countries.