Riksbank likely to keep policy rate on hold in September, may lower rate path

Riksbank is set to meet next week for its policy decision. According to a DNB Bank research report, the Swedish central bank is expected to keep the policy rate unchanged and slightly lower the rate path from July 2018 to show slightly less likelihood of a December 2018 hike.

One option might be to signal a smaller hike in December 2018, which would indicate slight downward revision of the rate path. The projection of a slightly lower rate path is based on underlying inflation having continued to disappoint since July 2018 and therefore the majority of the board is expected to have reservations in providing a clear signal of a hike in December 2018, noted DNB Bank.

An unchanged path might be a clear signal, as the current path shows nearly 90 percent likelihood of a 25 basis point hike in December 2018. Rising uncertainty related to the U.S.-China trade war also calls for caution, and the first rate hike might be postponed until February 2019.

“However, we do not rule out an unchanged rate path, as the SEK is once again weaker than the Riksbank expected and higher than expected energy prices are likely to lift inflation in the short-term”, added DNB Bank.