Riksbank seems in no hurry to deliver rate cut, to prolong current QE programme

Riksbank meets on Wednesday, 21st December to decide policy rates and is expected to stay pat. The central bank has cut its benchmark interest rate deep below zero and unleashed a bond buying program to spark inflation toward a 2 percent target it hasn’t reached for five years.

Riksbank Governor Ingves and his fellow policy makers are coming under increased questioning over their unprecedented stimulus measures, which last month drove the krona to a six-year low against the euro. The renewed push in oil and other commodity prices seen recently as well as a weak SEK can, at least temporarily, cause higher inflation.

"We expect commodity prices to rise slightly from here and a modest strengthening of the SEK. This last one is, however, not enough to balance fully the inflationary impulse, implying a small rise in inflation from summer 2017 onwards," said Danske Bank in a report.

Inflation continues to be a challenge for the central bank which has historically been half of wage inflation. Despite the 'core labour market' demonstrating among the lowest unemployment rates since the early 1990s, wage inflation is still very weak.

"We expect the Riksbank to prolong the current QE programme by six months (SEK30bn) and cut the repo rate by an additional 10bp to -0.60%. While the prolongation of QE is relatively widely accepted, the view on an additional rate cut is non-consensus." said Danske Bank in a report