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MNI PREVIEW: Riksbank On Hold; Doves Likely To Join Majority

By David Robinson
     LONDON (MNI) - The Riksbank is set to leave its repo rate on hold at 0.0%
at its February meeting and publish a collective rate projection showing the
rate flat-lining through to the first quarter of 2022, with a 25-basis-point
hike not even fully priced in by the end of the three-year forecast period.
     Following are key points to watch for from the Riksbank's policy decision
and quarterly Monetary Policy Report, both due on Wednesday:
     --The December Monetary Policy Report projected that the repo rate would
hold at 0.00% until the second quarter of 2022, when it edges up to 0.03%, after
which it rises to 0.13% in the fourth quarter of that year. A similar near flat
rate profile is likely in the February report.
     In December 2019, the Riksbank's central projection was for the repo rate
to rise from -0.25% to 1.0% by the end of 2021 but when it finally hiked in
December 2019, it produced a near flat rate path, only leaving the door just
ajar to one more increase in the latter half of its forecast horizon.
     "Four of the five increases forecast for the coming years have .. been
removed from the repo rate path, and my assessment is that only one increase is
possible, given the current economic outlook and inflation prospects. The fact
that the policy rate is forecast to lie still after today's meeting means we
will enter a wait-and-see situation," Riksbank Deputy Governor Cecilia Skingsley
said in the minutes of the December meeting.
     --Two board members, Anna Breman and Per Jansson, dissented from the
December decision, preferring to leave the repo rate unchanged at -0.25% but
both could vote to leave it unchanged in January.
     Breman's dissent was over timing rather than any opposition to tightening.
Her preferred rate path was steeper than the collective one.
     "I would prefer a repo rate path that indicates an increase during the
first half of 2020, on condition that economic activity has stabilised then, and
that the repo rate path then indicates around one rise per year in 2021 and
2022," she said.
     Jansson was unpersuaded of the case for near-term tightening, with
inflation struggling to get to target and downside risks evident.
     "I prefer a repo rate that is unchanged at -0.25% and a path for the repo
rate where the next increase occurs some way into the forecast period," he said.
     If he focusses solely on the desired level, he could justify a cut but he
also opposed the 25-basis-point hike in December 2018, which took the repo rate
to -0.25%, and then proceeded to vote for unchanged policy in the following
months rather than seeking to reverse the hike.
     --The most likely outturn is a unanimous vote in favour or unchanged
     If there is any slight modification to the policy stance, it could come
through acknowledgement that the external environment has improved, with some
diminution of trade tensions, and a marginal shift upwards in the implied
probability of a hike in the forecast horizon.
     --Economic data since December has yet to throw up major surprises.
     In November CPIF inflation rose to 1.7% and stayed there in December, but
the Riksbank may take the view that it is too early to row back on its
assumption that inflation will increase over the coming months. Similarly,
activity data is compatible with a deceleration in growth but is not clearly
pointing to any sudden halt.
--MNI London Bureau; tel: +44 203-586-2223; email:
[TOPICS: MT$$$$,MX$$$$]

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