MNI STATE OF PLAY: Riksbank Maintains FX Intervention Regime

--Riksbank Monetary Policy Left On Hold

--Dissents On Rate Path, FX Regime From Floden, Ohlsson

By David Robinson

     LONDON (MNI) - The Riksbank Executive Board voted to extend its emergency

foreign exchange intervention regime Tuesday, leaving sole control with the

Governor and First Deputy Governor, also choosing to leave monetary policy

unchanged.

     The Riksbank left its forecast for the repo rate unaltered, indicating

"that slow repo rate rises will be initiated towards the end of the year," but

there were two dissents on the six person board, from Martin Floden and Henry

Ohlsson. 

     For now, the Riksbank is only moving slowly back towards policy

normalisation and has passed up the chance to drop its extraordinary FX regime.

     Ohlsson voted for an immediate 25 basis point rate hike, which would have

taken the policy rate to -0.25%, while Floden wanted the path to indicate a rate

hike in September or October, rather than towards the end of the year.

     --FX MANDATE EXTENDED

     One, more surprising, development was that the Executive Board voted to

extend the mandate under which Riksbank Governor Stefan Ingves and First Deputy

Governor Kerstin af Jochnick have the power, if time is short, to authorise FX

intervention before consulting the board. 

     Removing that power would have been a signalling device -- a step along the

road to policy normalisation.

     Back at the start of 2016 the perception at the Riksbank was that the power

was needed to demonstrate its intent to tackle ultra-low inflation and its

commitment to its inflation target. The message was that FX intervention could

be authorised at any time to push down the krona and drive inflation higher.

     The power has not, however, been used and Floden and Ohlsson registered

their dissents against the regime but they failed to sway their colleagues and

with the power expiring July 2 the board renewed it.

     "The krona has weakened in the past year. But in the years ahead, it is

expected to strengthen and the exchange rate remains a source of uncertainty as

regards the development of inflation. An excessively rapid appreciation of the

krona would make it more difficult to stabilise inflation," the policy statement

said.

     --OHLSSON DISSENT

     On monetary policy Ohlsson's dissent was expected. He told MNI in a recent

interview that it was natural to tighten policy with inflation around target and

economic activity elevated and he argued that there was no need to wait for wage

inflation to accelerate, as that could lag.

     Floden is also on board for an early hike, with the statement saying he

"advocated a repo rate path that indicated an initial increase of the repo rate

by 0.25 percentage points in September or October this year but that coincided

with the report's repo rate path as from the third quarter of 2019."

     The majority on the board, however, opted to signal a hike only at the tail

end of this year.

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

[TOPICS: MX$$$$]