MNI BRIEF: Riksbank Floden: Focus On Rate Hikes, Not QT

The Riksbank policy rate and not quantitative tightening would be the primary tool for tightening Deputy Governor Martin Floden said Wednesday. In response to an MNI question, Floden said that they had not set out an order for QT and interest rates in tightening policy and that opinions may differ among policymakers but that his view was clear. "QT is not a substitute for the interest rate.

The primary tool is the policy rate," he said, adding that QT's effects were likely to be marginal ones on market pricing. In a speech Wednesday he argued that the central bank needed to hike its policy rate early to avoid more tightening later.

Flodden told MNI that while theoretically it could scale back tightening later on in its three year forecast period it was unlikely. A central bank can raise "the policy rate above what you think is the long-run normal to cool down the economy and then to move back to that long-run normal" he said but with the policy rate starting at zero "within three years it is unlikely that it would go above that rate" and then come back down, he said.