**MNI STATE OF PLAY: Riksbank Hikes, Lowers Rate Path

By David Robinson

     **LONDON (MNI) - Sweden's Riksbank hiked its key policy rate by 25 basis

points to -0.25% on Thursday while lowering its projected rate and inflation

paths, almost eliminating the chance of another increase before the third

quarter.

     Following are key points from the Executive Board's policy announcement and

quarterly Monetary Policy Report (MPR), which contains its economic and rate

projections:

     --"The forecast for the repo rate indicates that the next rate rise will

therefore probably occur during the second half of 2019," the Riksbank stated.

     MNI estimates, based on the Riksbank's updated collective rate forecast,

put a zero percent chance on a first quarter hike and a 10% chance on a Q2 hike.

There is now a very low chance of any policy change until Q3.

     The forecast showed the repo rate at 0.98% at end 2021, down from 1.23% in

the previous quarterly forecast.

     -- The board opted for a "dovish hike" - raising the policy rate but

lowering the subsequent policy path. Before the meeting, ITS guidance was that

the policy rate would likely be raised in December or February and market

participants were split over what would happen, with some speculation over a

"hawkish hold."

     -- The krona, appreciated around 1% against the euro following the policy

announcement, despite the board's statement that risks from too strong a

currency outweighed those from a weaker exchange rate.

     "In the prevailing situation, the risks linked to an unexpectedly strong

krona are judged to be more difficult to manage, considering how long it has

taken inflation to become established at a level close to the target of 2%," the

MPR stated.

     --In the MPR the Riksbank edged its inflation and growth forecasts lower.

The central bank acknowledged slowing growth in key export markets and a slight

diminution of inflation pressure.

     Its forecast for CPIF, its target inflation measure which assumes a fixed

interest rate, was lowered for 2019 and 2020. The MPR saw CPIF at 1.9% in 2019,

down from the previous estimate of 2.1% and at 1.8% in 2020, down from 1.9%.

CPIF was only shown hitting the 2.0% target in 2021.

     Riksbank economists highlighted the impact of energy price changes in

recent volatile inflation data. Excluding energy, CPIF was projected to hold

very close to the 2.0% target, at 1.9% in 2019 and 2020 and 2.0% in 2021.

     --Growth forecasts were cut substantially for 2019, to 1.5% from 1.95%, but

left unchanged at 2.0% in 2020 and at 1.8% in 2021.

     The forecast projected near-term slowing in export demand. Export growth

was shown decelerating to 3.3% in 2019 from 3.6% but holding steady at 3.7% and

3.5% in 2020 and 2021 respectively.

     The Riksbank highlighted the risk from U.S.-led trade battles, saying

"export orders in large parts of the world could be an indication that this

conflict has already had an impact on foreign trade."

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

[TOPICS: MT$$$$,MX$$$$]