SEK likely to appreciate gradually in coming year, EUR/SEK to trade around 9 by 2016-end

The Riksbank had extended its quantitative easing program in April by SEK 45 billion to the end of 2016. But recent comments from several officials imply that the bar to further loosen monetary policy continues to be high. This is because of the current signals that the price pressures in Sweden continue to climb. In the final quarter of 2015, the Swedish economy grew 1.3%, the most rapid quarterly growth rate in five years. The country’s jobless rate continues to be near a seven-year low.

Furthermore, expectations for inflation continue to be strong. Expansion of monetary policy elsewhere in Europe poses upside risks to the SEK. However, if the SEK does not gain rapidly, and if the inflation outlook deteriorates noticeably, the Swedish central bank is expected to avoid further easing of policy rate or extend its QE program beyond the end of 2016.

“We forecast the SEK to appreciate gradually over the coming year, with EUR/SEK drifting lower to around 9.0 by end 2016”, noted Lloyds Bank in a research report.