MNI REVIEW: Riksbank Policy Unchanged, Slower Tightening Ahead

-Riksbank Flattens Future Rate Path

By David Robinson

     LONDON (MNI) - The Riksbank left its key policy rate unchanged at -0.25%

and predicted a slower pace of tightening ahead, although it still pointed to

the possibility of a hike before year-end.

     The following are key points from the policy decision and September

Monetary Policy Report, its quarterly forecast and economic assessment

publication.

     -The Riksbank Executive Board stuck to its guidance that a 25 basis point

hike was likely "towards the end of the year or at the start of next year."

     -If that hike is delivered, the board then expects the pace of tightening

to be glacial, and even slower than in the previous July forecast due to "low

interest rates abroad and the worsened sentiment." 

     -The Riksbank's forecast showed the Repo Rate averaging 0.0% in 2020, down

from 0.1% in the July report, and 0.2% in 2021, down from 0.5%.

     -The Riksbank's detailed rate forecasts allow an estimate to be made of the

probabilities of a hike each quarter. The MNI estimate put the chance of a 25

basis point hike by January at 70%, with one fully priced in by February.

     -The inflation profile suggests that the central bank will be under no

great pressure to tighten. CPIF, the target consumer price measure, was shown at

1.7% in 2019 and 2020 and at 1.8% in 2021, all below the 2.0% target. Excluding

energy prices, it rises to 1.9% in 2020 and 2021.

     -The Riksbank's repeated its prediction that the krona will strengthen has

been confounded time and again recently, but it stuck to the assumption in the

Monetary Policy Report. The trade weighted Krona index, the KIX, was shown

rising 2% on the year in 2019, 2020 and 2021. In index terms it moves from 121.7

in 2019 to 116.8 in 2021, where are lower reading is an appreciation.

     -The Riksbank cut its growth forecasts. Swedish growth was estimated to be

1.5 in 2019, down from the previous estimate of 1.8%, and 1.5% again in 2020,

down from 1.6%.

     It also said that "the labour market has now slowed down" with unemployment

rising compared with the first half of 2019. The unemployment forecast was

revised upwards slightly compared with July, rising to 6.6% in 2019 from 6.3% in

2018 and coming in at 6.7% in 2020, above the 6.5% forecast in July.

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

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