The Riksbank kept the policy rate on hold at -0.25 percent today and the rate path was unchanged. The central bank will purchase government bonds as stated in April. The decision to keep the rates on hold was in line with expectations. However, the decision to keep the rate path unchanged was probably slightly more hawkish than anticipated.
The Riksbank repeated that the forecast for the repo rate “indicates that it will be increased again towards the end of the year or at the beginning of next year”. According to a DNB Markets research report, the rate path suggests about 25-30 percent probability for a rate hike in October, 55-60 percent probability for a hike in 2019 and 40-45 percent probability for a rate hike in February.
“The Riksbank accentuates the external downside risks. We still expect the Riksbank to raise policy rates in February next year. The decision from the April meeting to purchase government bonds for 45bn SEK from July 2019 to December 2020 still applies”, stated DNB Markets.
The central bank, in its statement said that “in accordance with the decision in April, the Riksbank will purchase government bonds for a nominal amount of SEK 45 billion, with effect from July 2019 to December 2020”. This is around half of the principal payments and coupons that the Riksbank will receive from the bond portfolio in this period.
The CPIF inflation projections were little changed. The central bank adjusted down the inflation forecasts by 0.1 percentage points to 1.7 percent for 2019; however, the forecasts for 2020 and 2021 were unchanged. Meanwhile, the GDP growth forecasts were raised by 0.1 percentage points to 1.8 percent for this year and were lowered by 0.3 percentage points for 2020. The growth forecast for 2021 was unchanged.
