MNI STATE OF PLAY: Riksbank Pushes Back Likely Timing Of Hike

By David Robinson

     LONDON (MNI) - Sweden's central bank pushed back the likely timing of a

rate hike, forecasting it will come in either December or February rather than

previous guidance of "towards the end of the year."

     The Riksbank's Executive Board was divided over policy at its September

meeting, with Martin Floden arguing for a probable 25 bps hike in October and

fellow deputy governor Henry Ohlsson favouring an immediate increase by that

amount.

     Only the dissenters' views, unchanged since the July meeting, were spelled

out in the statement, but the altered guidance indicated a shift in the board's

centre of gravity.

     Minutes to be published on September 12 could show a change by Deputy

Governor Cecilia Skingsley, who said in July she was likely to support a hike in

October or December.

     The dominant view now appears to be that backed by Governor Stefan Ingves

-- that caution over tightening is justified as inflation risks undershooting

its target.

     The board's collective rate path shows the repo rate rising by 25 bps in

December or February and then increasing twice a year from its current -0.5% to

0.4% by 2020, a very gradual policy normalisation for an economy which in the

central bank's view has little spare capacity.

     The krona's depreciation against the euro since mid-June, amid softer than

expected inflation and economic uncertainty in Turkey and Italy, has not altered

the broad brush picture for the Riksbank of strong growth and subdued inflation.

     "The effects on Swedish exports of the recent weak krona are expected to be

moderate ... partly because the krona depreciation is deemed to be temporary and

because Swedish export goods contain a large proportion of imported input

goods," the Riksbank said in its monetary policy report, issued together with

the statement.

     The Riksbank's effective exchange rate KIX index was forecast to go from

118.0 in 2018 to 116.3 in 2019 and 112.6 in 2020, a lower projection than back

in July.

     Goods and services output is still expected to grow by 3% to 4% in coming

years.

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