MNI STATE OF PLAY: Riksbank To Signal Multiple Hikes

Sweden’s Riksbank is likely to signal on Thursday that it expects several rate increases this year to rein in inflation, and could even decide on its first hike of the cycle at its April meeting, in an abrupt hawkish shift from its February forecast round when it still had not expected to tighten until 2024.

While many analysts expect the first hike in June, the main reason suggested for delay, to give the public more time to prepare, has become less compelling as policymakers have publicly advocated tightening.

In its collective rate path published in February the Riksbank showed the repo rate flatlining at zero until 2024 and only reaching 0.31% by the end of the forecast, in Q1 2025. Now it looks likely to price in several hikes in 2022 alone.

Market pricing suggests as many as five 25-basis-point hikes in 2022. Analysts see four as being possible if April is the start date, and three if the first hike is delayed until June.

TIGHTENING CYCLE

But the Riksbank looks unlikely to endorse a tightening-cycle peak as high as the 2.5% shown in rates pricing. Deputy Governor Martin Floden, in response to an MNI question earlier this month, said he did not expect the policy rate to rise above neutral, the rate compatible with stabilising inflation and output, over the next three years.

However, Floden, like Governor Stefan Ingves in a recent interview, made clear that the Riksbank needs to demonstrate its commitment to getting inflation back to target.

On the target CPIF measure inflation rose to 6.1% in March and to 6.0% on the CPI measure. In February the Riksbank had forecast CPIF inflation at close to 4% in the first quarter before falling rapidly over 2022.

The more rapid termination of planned asset purchases likely to be announced on Thursday will be of marginal significance. The Riksbank has not specified any sequential link between quantitative tightening and rate hikes.

"QT is not a substitute for the interest rate. The primary tool is the policy rate,” Floden said, adding that other Executive Board members may have different views on sequencing.