MNI STATE OF PLAY: Riksbank On Hold, Optimistic On Economy

--Door Left Open To QE Extension, ECB Policy In Focus For The Bank

By Kieran Williams

     LONDON (MNI) - Sweden's Riksbank unanimously kept policy on hold Thursday,

leaving the key repo rate at -0.50% and affirming that the asset purchase

programme will continue until the end of 2017.

     The door was left open to the possibility of a QE extension, with the

statement saying current policy provided "an opportunity to await further

information that could affect a decision in December to possibly extend the

purchases." The Bank also maintained its forecast that rates will not rise

earlier than mid-2018.

     Though optimistic on the economy, it was a cautious announcement from the

Riksbank. "Monetary policy has contributed to economic activity in Sweden being

strong. The employment rate is historically high. Inflation has risen and was

2.3 per cent in September," said the statement.

     The Bank noted, however, that temporary factors were behind inflation

increases in recent months. Inflation forecasts were revised slightly lower, the

forecast for core inflation was revised lower by 0.1ppt in 2017 and 2018 to 1.9%

and 1.8% respectively.

     Weaker than expected inflation figures in September has led many to reach

the conclusion that inflation has peaked in Sweden, meaning that anchored

inflation expectations are of key focus for the Bank.

     In a hat tip to the ECB the Riksbank noted "for inflation to remain close

to target, it is also important that the krona exchange rate does not appreciate

too quickly. This could happen if, for example, the Riksbank's monetary policy

deviates clearly from that of other countries."

     While the decision was unanimous, Martin Floden and Henry Ohlsson entered

reservations against the decision to extend the foreign exchange mandate. This

does not constitute dissent but means that moving forward, if inflation

expectations are well anchored, the policy could be discontinued.

     The statement notes that Floden has lodged this reservation in the past,

and that Ohlsson "considered that, in a situation with inflation and inflation

expectations close to the target level, potential interventions on the foreign

exchange market could be managed without a special mandate."

     Looking ahead, ECB policy will be a primary determinant of action at the

Riksbank - the Bank continues to explicitly link its policy to other central

banks. The housing market will also be a focus, recent survey data indicates

that the housing market is cooling, which could impact inflation going forwards

amid calls that price rises have peaked.

--MNI London Bureau; +44 203 865 3809; email: kieran.williams@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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