MNI RIKSBANK WATCH: April Hike, Rates To Stay At Peak

The Riksbank is largely expected to announce a 50-basis-point to 3.5% on Thursday and to indicate it will hold the policy rate steady for some time once it reaches the peak of the tightening cycle.

While policymakers have stated they will debate whether to raise by 25 or 50, upside inflation surprises have tilted expectations towards the larger increase. First Deputy Governor Anna Breman has also called for Sweden’s central bank to make clear tightening is here to stay in order to get inflation back to target.

April’s Monetary Policy Report looks set to lift the projected rate peak closer to 3.5% or 3.75% from the 3.33% indicated in February, when the Riksbank also hiked by 50bp.

Some market participants, according to an SEB survey, see policy rate reversals as early as next year but the Riksbank is highly unlikely to signal any such move so soon.

WAY ABOVE TARGET

Inflation on the standard CPI measure fell to 10.6% in March from 12%, while on the target CPIF measure it stood at 8.0% and 8.9% on CPIF excluding energy prices. Those levels, despite the evidence of inflation having peaked, are still so far from the 2.0% objective that the Riksbank will be keen at its press conference to get the message across that it is committed to doing whatever is necessary to return to target on a sustained basis.

While one encouraging sign for the Riksbank is that upside risks to wage growth have diminished, in its most recent forecasts Sweden’s National Institute of Economic Research sees CPIF ex-energy only falling back to 2% in the second quarter of 2024.

Manufacturing sector unions agreed a two-year benchmark pay deal with just a 3.3% increase in the second year, suggesting that overall earnings growth may not be far away from the Riksbank's 3.6% forecast for 2024.