Riksbank likely to stand pat in February, may lower interest rate path – Nordea Bank

The Riksbank is set to meet next week for its monetary policy decision. According to a Nordea Bank research report, the Riksbank is expected to keep its policy on hold. The decision is likely to be unanimous. Meanwhile, the interest rate path is likely to stay unchanged, although the end point might be hiked to just below 0.9 percent as the path now covers the period up to the first quarter of 2021, stated Nordea Bank.

The Swedish central bank might remain sidelined mainly due to high global growth and rising interest rates globally, reducing the appreciation pressure on the krona, among other things. Moreover, domestic GDP growth for the fourth quarter appears to be at a satisfactory level.

The risks to the projection ahead of the Riksbank’s announcement are greatly skewed towards a downward adjustment of the interest rate path. This is due to an uncertain inflation outlook. The central bank’s inflation projection stands out. It is higher than Nordea Bank’s forecast and is also considerably higher than the NIER’s expectations.

The wages outcome released recently was disappointing to the central bank. The National Mediation Office’s preliminary statistics indicate that the hourly pay rose just 2.5 percent year-on-year in November. Meanwhile, the outcome for the earlier months was downwardly revised. It now appears that wage growth might have stayed modest at an average rate of 2.5 percent last year.

The deviation from the central bank’s projection for 2017 of 2.7 percent might appear marginal; however, Rikabank is probably worried as wage growth does not appear to accelerate. Thus, the outcome for wages might feed through to the wage forecast for 2018.

“We therefore expect that the Riksbank will lower its inflation forecast and be closer to our view. The revision will likely take place gradually over several reports”, stated Nordea Bank.

Riksbank is unlikely to hike rates at all in 2018, while inflation is expected to slow down and will not be high enough to warrant a rate hike, stated Nordea Bank.

“Irrespective of the outcome next week, the interest rate path will be lowered in the April report and subsequent reports, we think. In other words, we expect the repo rate to remain unchanged throughout 2018”, added Nordea Bank.

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