POV (2/2) - On the hawkish side some see...>

RIKSBANK: POV (2/2)

- On the hawkish side some see no reinvestment with an unchanged repo path.

- The main reason for the divergence in opinion is the lack of clarity over the

Riksbank's reaction function.

- The vast majority (if not all) economists expect the Riksbank to revise its

inflation path lower. The conventional way to deal with this would be to push

hikes further into the future.

- However, many also expect that the Riksbank are placing greater emphasis on

moving away from negative rates while the economy is doing ok than hitting its

inflation target. The argument here is that if inflation is going to fall

anyway, the Riksbank may as well get the hikes out of the way sooner rather than

later and stick to its current rate path.

- We think that the market is anticipating a partial reinvestment with the repo

rate path rolled a quarter into the future.

- However, with such polar outcomes possible, short-dated SEK volatility looks

underpriced to us.