The Debt Office will position for a stronger SEK.
It will do this by reducing the pace at which it buys foreign currencies.
The decision poses a downside risk to our 1-3M 10.20-10.30 forecast.
Debt Office to take position in SEK
Today, the Swedish National Debt Office (DO) announced that it is going to position for a stronger SEK. It argues that because the krona is weak, it would be cost saving and beneficial for taxpayers to reduce the pace of SEK20bn at which it is currently paying off foreign debt. The mandate it has for this is SEK7.5bn. A few comments:
First, the decision evidently came as a big surprise, as seen by the sharp kneejerk reaction in EUR/SEK falling from 10.27 to 10.18. After the initial drop, the cross has rebounded slightly to above 10.20.
Second, while the DO may have good arguments, it was a surprise given that we know it clashes with the Riksbank's inflation ambitions. Remember that in the autumn of 2016, the DO asked for a higher currency mandate (from SEK7.5bn currently), but it was turned down by the government on the recommendation of the Riksbank, which said it could make it harder to them to get inflation higher.
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