MNI 5 THINGS: First Riksbank Hike Seen Towards Year End

--Five Things We Learnt From Riksbank Policy Minutes

By David Robinson

     LONDON (MNI) - The Riksbank published the minutes from its monetary policy

meeting Thursday. The meeting concluded with a July 3 announcement that the six

member Executive Board had left the repo rate unchanged at -0.5% and the repo

rate path was left unchanged, signalling a hike "towards the end of the year."

     The meeting saw dissents from Henry Ohlsson in favour of an immediate hike,

from Martin Floden who wanted the repo rate path to indicate a 25 basis hike in

September or October and both Floden and Ohlsson opposed extending the power

given to the governor and first deputy governor to undertake emergency foreign

exchange intervention. 

     Here are five things we learnt from the minutes:

     -The minutes highlighted the fragmentation of views on the Executive Board

but on balance pushed back against the downward shift in market rate

expectations ahead of the meeting. Market participants at the time tended to

divide between those looking at a December hike and those thinking it would not

come until 2019. The minutes, however, raised the possibility of an earlier

hike.

     -The long awaited acceleration in earnings growth in Sweden is looking more

likely in the Riksbank's view. First Deputy Governor Kerstin af Jochnick said

there was plenty of evidence of "some upward pressure on wages in Sweden,

further facilitated by signs of rising wage growth abroad." This increase in

domestically generated inflation should support the case for monetary tightening

down the line.

     -Deputy Governor Per Jansson, however, edged towards a more dovish view

than the majority. He took the view that the first hike was as likely to come in

2019 as this year and he indicated that he could publish a dissenting forecast

in future.

     -The board was united in identifying the krona exchange rate as a wildcard,

with unexpected weakness and economic uncertainty abroad highlighting the

problem of predicting where it will head next. The board's central view was that

the currency would strengthen but Cecilia Skingsley said "it is just as likely

that the krona will not appreciate, due in part to the international risks." She

also cited the uncertainty generated by the looming Swedish elections on the

currency. Skingsley too indicated that it was reasonable to think a hike could

come before December.

     -Governor Stefan Ingves, however, is playing the classic central bank card

of emphasising the need for caution, but he did acknowledge that the Swedish

policy rate could be higher than those in the European Central Bank, with the

domestic economy running hot.

     The minutes suggest that the debate over tightening is likely to be intense

in the Autumn, with Floden and Skingsley openly contemplating joining Ohlsson in

supporting a hike by October.

--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com

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