MNI REVIEW: Riksbank Hikes, Says Rate To Stay At 0 For Years

-Riksbank Raises Repo Rate By 25bps To Zero, As Expected

By David Robinson

     LONDON (MNI) - The Riksbank raised the repo rate by 25 basis points to zero

at its December meeting and said it expected it to stay at that level for years

to come.

     The Riksbank had previously clearly signalled that it would hike in

December, but said that this would be the last one in this cycle and it

delivered the tightening at this month's meeting. It gave some indication that

it saw benefits in ending the period of negative policy rates. 

     The following are key points from the Riksbank's quarterly Monetary Policy

Report (MPR) and Governor Stefan Ingves' policy statement on behalf of the

board:

     -In October, the Riksbank said "the interest rate will be unchanged for a

prolonged period after the expected rise in December" and in December it made

its guidance even starker, stating that "the repo rate is expected to remain at

zero per cent in the coming years."

     -The Riksbank's collective rate path was unchanged in the December MPR from

that in October. The repo rate was shown drifting very gently upwards to reach

0.13% in Q4 2022, suggesting that the odds of a hike three years' ahead were

pretty close to evenly balanced.

     -The central bank indicated that it saw some benefit in moving away from a

negative policy rate, noting the current one had worked well but "if negative

nominal interest rates are perceived as a more permanent state, the behaviour of

economic agents may change and negative effects may arise."

     -The Riksbank cuts its growth forecast for this year, to 1.1% from 1.3%,

but then left its 2020 forecast unchanged at 1.2% and nudged up its 2021

forecast to 1.7% from 1.6% and raised it 2022 forecast to 1.9% from 1.8%.

     The central bank found encouraging signs in the world economic outlook,

saying that "the conditions for global GDP growth going forward are deemed to be

relatively favourable" with growth in its significant trading partners expected

to average around the historical average of 2% in the years ahead.

     -With growth holding close to potential, inflation was forecast to be

subdued, running below the 2.0% CPIF target throughout the forecast period.

coming in at 1.7% in 2019, 2020 and 2021 and rising to 1.9% in 2022.  

     -Unemployment was shown edging up from 6.8% in 2019 to 7.1% by 2022, with

the jobless forecasts all unchanged from the previous quarterly forecast round

in October.

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

[TOPICS: MT$$$$,MX$$$$]