EUR/SEK to reach 9.75 by mid-2022 – CIBC

The Riksbank assumes that policy can and should remain at zero until the end of their forecast profile, currently Q3 2024. The question is, are such assumptions tenable? Earlier liftoff by Riksbank than expected will support SEK momentum, economists at CIBC Capital Markets report.

The Riksbank appears in no hurry to consider post-pandemic tightening

“Above trend GDP is a function of household consumption, which is expected to average nearly 5% in calendar years 2021/22. Rising activity levels will also result in a sliding unemployment rate, which the central bank sees dropping from 8.8% this year to 7.6% next. Such assumptions point towards the need to tighten in late 2022, not 2024.”

“The bank seems reluctant to move early despite inflation being set to miss their target. A more realistic rate profile will encourage a stronger SEK, limiting the CPI overshoot.” 

“For now, the currency remains substantially undervalued and we expect an appreciation, with EUR/SEK expected to reach 9.75 by mid-2022.”