MNI POLICY: Riskbank Minutes Show Jansson's Doubt On Dec Hike

--Some Opposition To Dec Hike Likely; Minutes Highlight Doubts 

By David Robinson

     LONDON (MNI) - The Riksbank Board was not united in its approach to leaving

interest rates unchanged at -0.25% and signalling a December hike, the published

minutes of the October meeting showed.

     The board's collective rate path showed the repo rate being raised to zero

percent in December and then staying there throughout the forecast period.

Deputy Governor Per Jansson was openly critical of this policy path, although he

did not register a formal dissent, while his colleague Cecilia Skingsley

stressed that alternative rate paths were possible.

     The following are key points from the minutes:

     --Jansson expressed concern that the Riksbank's forecasts showed inflation

holding below target near-term and that inflation expectations are on a

downtrend.

     "I prefer a repo-rate path that does not presuppose a rate rise around the

turn of the year but instead assumes that the next rise will occur some way into

the forecast period, when hopefully at least some of the risks and fears I have

mentioned are no longer so acute," he said.

     He said that he decided not to enter a formal dissent because the rate path

was, fundamentally, reasonable with the repo rate holding at zero and what he

was questioning was when to hike.

     "The whole thing therefore comes down to a timing issue," he said.

     --Governor Stefan Ingves defended the "one hike and done" approach to

monetary policy, arguing that having a negative interest rate was never intended

to endure but that current circumstances did not justify sustained tightening.

"We have always expected the period of negative interest rates and large-scale

government bond purchases to be a temporary measure to bring inflation back to

target," he said.

     While a December hike was reasonable "we can expect low global interest

rates for some time to come and I find it difficult to see a reason for now

indicating that the interest rate will be raised further in the near term," he

added.

     --Deputy Governor Martin Floden also took the approach that moving away

from the lowest rate levels had benefits. He argued that at negative rates the

main transmission path became the exchange rate than improved credit flow.

     "I see some intrinsic value in being able to raise the policy rate from

-0.25 per cent to 0 per cent," he said.

     --Deputy Governor Henry Ohlsson said that unemployment was too high but

domestic economic activity remain strong and he said "I support the repo-rate

path showing a high probability of a repo-rate rise towards the end of this

year."

     -Deputy Governor Cecilia Skingsley highlighted the uncertainty around the

forecast and said that there were a variety of possible policy paths to achieve

the inflation objective.

     She said that she did not believe that "the fact that the forecast shows an

unchanged policy rate for a large part of the coming three years should be

interpreted as this level, zero per cent, being a floor or ceiling for the

policy rate."

     In her view, one risk of prolonged ultra low rates was that they would

increase financial vulnerabilities.

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