Riksbank keeps monetary policy unchanged in September, likely to hike first in October 2018

The Swedish central bank, Riksbank, kept its monetary policy on hold. This signifies that the repo rate remains at -0.50 percent and that the QE program is planned to run throughout this year. Also, the repo rate path was kept untouched, pointing to a first rate hike mid-2018, noted Nordea Bank. The governing board was unanimous in its decisions.

The central bank has dropped the wording “now especially important that inflation stabilizes more lastingly close to the target”. This might seem as slightly hawkish but should not be overplayed, stated Nordea Bank.

The central bank made some revisions to the macro economic outlook. The inflation forecast was slightly revised up with CPIF-inflation forecast to average 2 percent this year and 1.9 percent in 2018. Core inflation is expected to reach 1.7 percent this year and 1.9 percent next year. GDP-growth was upwardly revised for both the years.

Resource utilization is high and rising. Inflation at present is running above the target and is likely to remain close to 2 percent in the next few months. However, these factors are unlikely to be sufficient for the Riksbank to change stance.

According to Nordea Bank, inflation is expected to start declining gradually later this year. A shift in policy stance by the Swedish central bank would mostly likely strengthen this declining inflation trend through a stronger SEK. Inflation is likely to come below the target in 2018 and 2019.

“We forecast a first rate increase in October 2018 and two additional hikes in 2019, leaving the repo rate at 0.25 percent at the end of 2019”, added Nordea Bank.

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