Swedish central bank keeps monetary policy and rate path unchanged

The Swedish central bank kept its monetary policy and rate path unchanged during its meeting today. This signifies that the bank is aiming for a rate hike later in 2018. Therefore, the bank continues to hint a fairly high possibility of a rate hike in the fourth quarter of 2018. The rate path suggests as 40 percent possibility for a 25 basis points hike in October. Longer out, the end point was hiked to 1.15 percent as the interest rate path is now covering the third quarter 2021.

The Governing Board was split in its decision as governor Ohlsson voted for a rise. Moreover, governor Flodén made a reservation against the rate path in the short end. He advocated a rate path that hinted a rate hike by 25 basis points already in September/October. This should come as no big surprise as he already in April stated that he “would have preferred to see an even smaller revision of the forecast so that it is clearly indicated that there is still a possibility of the repo rate being raised in September”.

Riksbank revised up the inflation forecast for both 2018 and 2019. CPIF – inflation is now projected at 2.1 percent both in 2018 and 2019. Core inflation, that is, CPIF excluding energy, is projected at 1.6 percent in 2018 and 2 percent in 2019. As anticipated the macro projections were otherwise left unrevised, noted Nordea Bank in a research report.

Riksbank is expected to downwardly revise the rate path in September. By then it would be clearer that GDP growth is slowing down, which would raise concerns about the inflation outlook. Moreover, the October meeting would be closer in time.

“We stick to our forecast that the Riksbank will lift its policy rate in Q4 2019, which is the same time as we foresee a first rate hike from the ECB. In the report, the bank also mentions factors that can delay rate hikes, notably higher trade tensions and also that expectations of the ECB has shifted towards later rate hikes”, added Nordea Bank.

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