Will the Riksbank go all out? - Commerzbank

The market has strongly priced in the fact that the Riksbank will frontload, as it expects the bank to cut rates by a whopping 50 basis points today, from 3.25% to 2.75%. It had also signaled this frontloading in September, when it cut by only 25 basis points. It signaled a rate cut at each of the two remaining meetings this year (November and December), even mentioning the possibility of 50 basis points at one of the two meetings. According to the market, the time for 50 bp has come today, Commerzbank's FX Analyst Antje Praefcke notes.

Riksbank to proceed more gradually

"In my view, the Riksbank wants to use the rapid interest rate cuts to support the economy and avoid inflation falling to excessively low levels, since it has fallen significantly in recent months and is now below the inflation target. The new figures for October, which will be released today before the Riksbank decision, should confirm the picture, although base effects could lead to a slight increase in the annual rate. Furthermore, the latest economic data have tended to fuel concerns that the economy is still growing only sluggishly and could use support."

"I expect it to change its wording only slightly today. The market is pricing in 50 basis points today, sees only a small chance of a further interest rate move in December, but then a 50 bp move again in January. I think the Riksbank will proceed more gradually. So if it really is planning 75 basis points by year-end, pricing in 50 basis points makes sense for today. If it plans only 50 basis points by year-end, it will cut 25 basis points today and in December.

"In my opinion, such sharp jumps of 50 bp at every second meeting make no sense in view of the fact that the Riksbank has often emphasized in the past that it prefers a gradual monetary policy. The SEK also generally suffers from ongoing market uncertainty. Depending on what the Riksbank indicates for the upcoming meetings, there may still be shifts in interest rate expectations. However, these are likely to revolve primarily around the timing of the cuts (gradual, less gradual), rather than the 'terminal rate', so I expect only a minor impact on the SEK."