MNI Policy: Riksbank Doubts On Feb Hike To Rise If Dec On Hold

By David Robinson and Jai Lakhani

     LONDON (MNI) - Sweden's Riksbank faces a choice between hiking this week or

leaving the repo rate unchanged and raising the likelihood of no move in

February.

     The Executive Board's most recent guidance was that the benchmark rate

would likely increase in December or February, with its rate path attaching an

equal probability to a move in each month. If it sits tight Dec. 20, this would

only really matter for the economy if it also made clear that it was not just

postponing the hike to February.

     In order to soften policy, the board would need to lower the cumulative

probability on a February hike in the rate path to be published Thursday from

the current 90% to something lower, say 70% or 50%. This is based on the

Riksbank's October projections of a 50% chance of higher rates in December and a

90% cumulative probability by February.

     But shifting the collective rate path lower could fuel dissent on the-six

member board. Deputy Governors Martin Floden and Henry Ohlsson had already

advocated raising the repo rate from -0.5% to -0.25 per cent at the October

meeting and deputy governor Cecilia Skingsley could join them in opposing a

significantly lower rate path.

     Market News analysis of Riksbank voting decisions has highlighted how the

three outsiders, those from an academic or other non-central bank/regulatory

background, namely Floden, Skingsley and Ohlsson, are more likely to dissent

while the inner members, Deputy Governor Per Jannson, first Deputy Governor

Kerstin af Jochnick and Governor Stefan Ingves, tend to vote as a bloc.

     The implication is that if the Riksbank opts for a hike this month it could

well be unanimous, even though the judgement would be finely balanced.

     But, if it opts against tightening, it would likely open the door wider to

not moving in February either.

     --INTERNATIONAL RISK

     "On the one side, international risk in particular may entail the

possibility of waiting further, after the December meeting. On the other side,

actual inflation has been on or above target for 11 of the last 21 months and

underlying price pressures are on the advance," Skingsley said in October.

     Since then, some of the international risks appear to be crystallising,

with softer euro area activity data in particular pointing to softer demand for

exports.

     "The inflation prospects at the coming monetary policy meeting will

determine whether I support a rise in December or whether I wait until the

following meeting (February)," Skingsley added back in October.

     This time around, if she does not back a December hike the big question

facing her will be whether to ditch the line that she will then back tightening

at the following meeting.

     Ingves and his inner colleagues are likely to be keen not to box themselves

in - if they opt against a hike this time they will also have to make clear that

February tightening is far from inevitable.

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

--MNI London Bureau; +44 203 865 3828; email: jai.lakhani@marketnews.com

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