MNI STATE OF PLAY: Riksbank Sticks To Hike For Dec Or Feb

--Riksbank Leaves Its Rate Projection Steady; Doesn't Tilt To Dec Or Feb

By David Robinson

     LONDON (MNI) - The Riksbank Executive Board left policy and its collective

rate projection unchanged at its October meeting, leaving the door open to a

hike in either December or February.

     As in September, the board said that if the economy performed as expected

it would hike in either December or February.

     Following are key points from the Executive Board's statement and the

accompanying Monetary Policy Report:

     --In the September projections the board, on Market News estimates, put an

even chance on a 25-basis-point hike in December with a 90% cumulative

probability of a move after its February meeting. Observers were waiting to see

if it would steer towards one month or the other, but the board sat tight. 

     "The forecast for the repo rate is the same as in September and indicates

that the repo rate will be raised by 0.25 percentage points either in December

or February," it said.

     --The six member board split, as expected, four-to-two in favour of

unchanged policy, with Deputy Governors Martin Floden and Henry Ohlsson

supporting an immediate 25-basis-point hike, which would raise the repo rate to

-0.25%.

     Ohlsson had backed tightening at the September meeting, when Floden had

said he wanted the collective rate projection to show an October hike was

likely.

     --The only other possible dissenter was Cecilia Skingsley, who had said in

September that she would have preferred the collective projections to attach

more than a zero likelihood to an October hike, but in the event her position

was unchanged.

     Her thinking will become clearer on Nov 2, when the minutes of this month's

meeting are published.

     --The Monetary Policy Report painted a picture of a strong economy, but

with mounting downside risks from abroad and some deceleration in headline

domestic growth. 

     Global risks, however, from protectionism and financial imbalances, are not

fully reflected in the central bank's projections.

     "The risks may, if they materialise, have a major impact on the global

economy in the period ahead, but they are difficult to quantify in a forecast,"

the MPR stated.

     --The board said that there was little spare capacity left and inflation

pressures were building up.

     "Resource utilisation in developed economies is rising and, apace with

this, wage growth and inflationary pressures are expected to rise gradually," it

said.

     --The MPC downplayed the spike in headline inflation to 2.5% in September,

noting that it was due in part to rising energy prices, and that "the median of

various measures of core inflation increased in September to 1.7%."

     With the Riksbank aiming for a 2% inflation target, core inflation is not

yet at a level that forces immediate action and inflation expectations are well

anchored at 2%.

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

[TOPICS: MX$$$$]