MNI POLICY: Riksbank Very Cautious Over More Tightening

--Minutes Show No Trace Of Hawkish Dissent And Cite External Downside Risks 

By David Robinson

     LONDON (MNI) - Minutes of the Riksbank Executive Board's December 19

Monetary Policy meeting, at which it hiked the key policy rate by 25 basis

points to -0.25%, highlighted its wariness over further tightening.

     No one on the board argued that the collective rate path, which has no hike

factored in for the first half of 2019 and only two 25-basis-point increases

annually from 2020 onwards, was too gentle.

     Following are key points:

     --Deputy Governor Per Jansson, the sole dissenter opposing the hike,

thought that even the very gradual rate path envisaged by his colleagues could

prove to be unjustifiable.

     Jansson said that domestically it was "particularly worrying" that wage

growth continued to surprise to the downside while the outlook abroad has

darkened.

     "We have ... large downside risks to economic developments at the

international level ... which are very difficult to quantify in a forecast," he

said.

     --Governor Stefan Ingves put weight on moving away from extraordinary

policy settings, arguing that negative interest rates were never meant to

endure. But he warned of risks from driving the krona rapidly higher.

     "It is reasonable to expect the krona to appreciate in the years to come,

but it is still important for it not to strengthen too quickly. If inflation

develops more weakly than is now expected, it may affect monetary policy,"

Ingves said.

     --All members other than Jansson were supportive of the quarterly Monetary

Policy Report's central projections.

     Deputy Governor Henry Ohlsson, who has spearheaded the drive to tighten,

said he now backed the collective rate path.

     "After accelerating and reaching marching speed, we can now take our foot

off the gas a little," Ohlsson said.

     --Deputy Governor Martin Floden, another proponent of earlier tightening,

also signed up to the idea of more caution ahead.

     "Inflation still needs a lot of support from an expansionary monetary

policy and ... rate rises in the period ahead must not be too rapid," he said.

     --No member tilted towards more rapid tightening than envisaged in the

collective rate path, underscoring that the Riksbank will proceed very

cautiously after having signed off on the December hike.

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

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