Before Thursday's preliminary inflation figures for January from the Statistics Sweden (SCB), the market pricing indicated that there would be at least one interest rate cut this year – maybe even two.
However, after the inflation figures, the probability of the second cut has been completely eliminated. Instead, a significant uncertainty has emerged regarding whether there will be a cut at all.
70% probability of interest rate cut
The probability of the Swedish Central Bank cutting the interest rate to 2.00%, from today's 2.25%, is currently around 70%.
The timing of this potential cut has also clearly moved forward in the market pricing. Previously, there was a certain probability that it could be a cut in March, although May or June was the most likely scenario.
Now, it seems that it may not happen until August-September, if it happens at all.
Other parts of the market are also reacting to SCB's unexpectedly high inflation figures for January.
The yield on a two-year government bond rises 0.10 percentage points to 1.96%, while the ten-year yield rises to 2.30% – up from 2.23% before the inflation figures.
Strongest krona exchange rate since September
The krona strengthens by a few öre against the dollar, to 10.92 kronor per dollar. But against the euro, it's a clearer move, up by five öre to 11.31 kronor. This is the strongest krona exchange rate against the euro since September last year.
Variable mortgage rates usually follow the Swedish Central Bank's interest rate up and down. A 0.25 percentage point cut in mortgage rates would reduce the cost of a three million kronor mortgage by 7,500 kronor per year, excluding the effects of interest deductions.
