MNI REVIEW: Riksbank Pushes Back Timing Of Next Rate Hike

--To End Bond Coupon Reinvestment; Part Reinvest Dec 2020 Bond

By David Robinson

     LONDON (MNI) - Sweden's Riksbank left its key policy rate unchanged at

-0.25% Thursday, lowered its collective rate forecast and pushed back the likely

timing of the next hike.

     The following are key points from the policy announcement and Monetary

Policy Report:

     - The Riksbank Executive Board flattened its collective rate forecast. Back

in February it stated that the next hike was likely in the second half of 2019

but the April projection showed a hike almost fully priced in only by early

2020.

     - MNI's estimates extracted from the Riksbank projection put a zero percent

chance on a hike at the July meeting, a 0 to 10% chance of a move at the

September meeting and a 30% chance in October. As noted, a hike is near fully

factored in by February 2020.

     - Various rate paths are compatible with the Riksbank published projection.

In its commentary the board stated that "The forecast for the repo rate is ..

revised down and indicates that the next increase will occur towards the end of

the year or at the beginning of next year."

     - The Board unveiled fresh plans for its reinvestment of maturing

government bonds and coupons held through its asset purchase programme, stating

that from July 2019 until December 2020 it would purchase a nominal SEK45

billion of bonds, amounting to about half of the principal payments and coupons

it was set to receive during this period.

     The new plans are designed to keep the stock of bond purchases broadly

stable rather than rising, as they would have been under the bank's previous

approach of fully reinvesting coupons and opting for early re-investment of

chunky holding of individual bond maturities.

     "The decision means that the Riksbank maintains holdings close to the

average level since the beginning of 2018," it stated.

     - Two board members, Henry Ohlsson and Martin Floden, both dissented from

the decision to carry out further asset purchases through reinvestment,

preferring to end them instead.

     - The shift to keeping its asset holdings steady while forecasting only a

very gentle rise in interest rates brings the Riksbank's approach closer to the

more cautious approach adopted by other advanced economy central banks.

     - Riksbank economists lowered their forecast for headline inflation in 2019

to 1.8% from 2.0% previously, with the 2020 forecast unchanged at 1.8%.

Projected Swedish GDP growth was raised to 1.7% from 1.3% for 2019, with 2020

unchanged at 1.9%.  

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

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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