Economists at ING believe the Riksbank will not meet market expectations of tightening in 2022. Still, RB is expected to take a hawkish stance later next year, which should drive the EUR/SEK pair to 9.65, in their opinion.

Waiting for the Riksbank’s delayed hawkish turn

“The market is currently pricing in around 50bp of monetary tightening by the Riksbank in 2022. We think such hawkish expectations are unwarranted given a relatively subdued medium-term inflation outlook in Sweden. We expect no hikes before 2023, and we think the RB will push back against the market’s hawkish bets in November and possibly until early-2022. Still, tightening plans elsewhere and a robust domestic story should force a hawkish shift in communication by 2H22.”

“Our trade team expects global demand to stay strong, while supply strains may keep hindering the trade rebound in 1H22 before easing in 2H22. We expect a YoY increase in global trade by 2.9% in 2022. More than half of Swedish exports are intra-EU and while we do not see eurozone growth exceeding expectations, we still forecast a decent 3.9% YoY for 2022, which should keep supporting the Swedish export industry.”

“We expect SEK gains to prove more moderate. We target 9.65 in EUR/SEK for the end of 2022.”