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MNI RIKSBANK WATCH: Holds, But Signals Earlier Cuts

(MNI) Stocckholm

The Riksbank left its policy rate on hold and announced faster quantitative tightening, as widely expected, but less predictably gave its guidance a dovish reworking, stating that the first interest rate cut could come earlier than previously expected, possibly as early as in the first half of 2024. (see MNI RIKSBANK WATCH: Rates Seen On Hold, QT Pace Stepped Up)

The Feb 1 announcement was not accompanied by a full economic forecast round or an in-house rate projection. Despite this policymakers were confident enough to bring forward the likely timing of the first cut, stating that the risks of high inflation being embedded had diminished.

The November projections suggested that the first cut would not come until the end of 2024 going into 2025. The central bank has switched to holding eight meetings a year, up from five in 2023, perhaps offering greater policy flexibility.

Governor Erik Thedeen told MNI Thursday that there was no new "secret" rate path that had been produced internally and in an interview he said that they were not delivering a strongly dovish message that easing would be so swift that they would keep outpacing the European Central Bank. (See MNI INTERVIEW: Riksbank Eyes Krona In Dovish Shift - Governor).

KRONA CONCERNS

Concerns over the already under pressure krona suggest some caution from the Riksbank when the easing cycle gets underway

The central bank also stepped up the pace of planned asset sales, from SEK 5 billion to 6.5 billion per month, with all the increase due to fast nominal bond sales with no plans yet to sell non-government bonds. Thedeen told MNI the central bank was not a natural home for holdings of private sector assets, some of which had been purchased during emergency policy setting, but the Bank has yet to publicly state how it envisages its balance sheet will look in the future.

Policymakers said the bulk of the recent economic news was broadly as expected, with further evidence of inflation pressures easing, with "inflation expectations close to the target and wages increasing moderately".

MNI London Bureau | +44 203-586-2223 | david.robinson@marketnews.com
MNI London Bureau | +44 203-586-2223 | david.robinson@marketnews.com

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