MNI STATE OF PLAY:Riksbank To Weigh 2024 Liftoff In Projection

The Riksbank's updated collective rate projection could show rates beginning to edge higher in three years for the first time in this cycle on Thursday, but such an outcome is not a done deal, with some policymakers calling in public for policy to be left on hold for longer even if inflation overshoots targets.

If Executive Board members come to similar conclusions as the government-backed National Institute of Economic Research, which sees the policy rate at 0.25% by end 2024, it could foresee rates at a level lower marginally by the end of its own horizon, given that its Monetary Policy Report projections will run only to August 2024.

With the focus on its projections, the Board is certain to leave the policy rate at zero at its meeting, a level its last MPR, in April, had foreseen persisting until mid-May 2024.

But board members have been keen to get the message across that downside risks to inflation and growth are more of a worry than upside risks, and have argued in favour of keeping policy on hold even if inflation turns out to be stronger-than-expected.

INFLATION UNDERSHOOTS

Deputy Governor Cecilia Skingsley has said it would not be a problem were CPIF fixed-interest rate inflation to exceed the 2.0% target, given prolonged undershoots against the measure in recent years.

The Riksbank's MPR April forecast was for CPIF to fall near-term before only finally getting back to 2.0% by mid-2024. CPIF then moved above 2% in both April and May, largely reflecting energy base price effects.

The central bank's latest 2021 growth forecast, of 3.6%, is below NIER and private sector forecasts and also looks ripe for upward revision.

Better projected inflation and growth projections would raise questions over the message that Governor Stefan Ingves and colleagues will choose to deliver alongside the policy decision and subsequent minutes and in public appearances in coming weeks.

Members have highlighted the likelihood of high volatility in inflation in coming months, with distortions from consumption baskets and supply chain disruptions. The recent data are unlikely to be sufficient to result in any shift from the broad guidance that policy will remain supportive as the recovery unfolds.