MNI REVIEW: Riksbank Leaves Policy On Hold; Ditches FX Mandate

--Riksbank Leaves Collective Hike Probabilities Unchanged

By David Robinson

     LONDON (MNI) - The Riksbank left its key policy rate on hold at -0.25%,

left its 2019 projected rate path unchanged and ditched its foreign exchange

intervention mandate.

     The bank also published its updated economic and policy rate projections in

its Monetary Policy Report, leaving the rate profile unchanged from December and

stating that the next hike would be in the second half of 2019.

     The following are key points from the policy statement and MPR:

     --The Riksbank Executive Board voted to take away the power given to its

Governor and Deputy Governor to intervene on the foreign exchange market without

consulting the board. The power was first granted back in January 2016 with the

aim of tackling krona strength with inflation at that time stuck below target.

The power looked anachronistic, with the krona depreciating markedly this year,

and the board voted not to renew it.

     --There were no changes to the collective rate profile from the December

statement. Market News' best estimate is that this profile implies a 10% chance

of an April hike, a 30% chance for July and 90% chance for September. After the

likely H2 hike, the board said that the repo rate would need to rise "roughly

twice a year by 0.25 percentage points on each occasion, for inflation to remain

close to 2 per cent (the inflation target)."

     --The Riksbank board downplayed the significance of slowing global growth,

highlighting instead the lack of spare capacity in the domestic economy and

rising cost pressures. The "outlook has not changed to any great extent since

December," the board said in its policy statement.

     --In its summary of important factors for monetary policy, the Riksbank

said growth was slowing down but conditions were in place for inflation to

remain close to 2%. The growth forecasts in the MPR for the euro area and for

policy rates abroad were lowered and Swedish growth was nudged down for this

year.

     --The MPR forecast for inflation on the target CPIF measure was raised to

2.0%  for 2019 from 1.9% in the December forecast but left unchanged at 1.8% for

2020 and at 2.0% for 2021. This reflects the projected weakness of the krona.

     --The exchange rate forecast on the KIX trade weighted measure was

predicted to be 117.9 in 2019 compared to 116.0 in the December forecast (where

a higher number indicates a lower exchange rate.) The GDP forecast was lowered

to 1.3% for 2019 from 1.5% and to 1.9% in 2020, down from 2.0%.

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