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MNI STATE OF PLAY: Riksbank Sticks To Zero Rate Forecast

MNI (London)

Sweden's central bank is prepared to look through a period of above-target inflation.

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The Riksbank maintained its projection for its policy rate to stay at zero for the next three years, with the executive board indicating after its meeting on Thursday that it was prepared to accept inflation overshooting 2.0% over the next 12 months to ensure it remains sustainably on target further ahead.

While updated forecasts showed inflation on the CPIF target measure rising from 2.4% in August to peak at 3.15% in November, the Riksbank's monetary policy report also highlighted uncertainties around Covid, with high vaccination rates in advanced economies weighed against lower rates elsewhere and the emergence of new variants. CPIF, which measures consumer prices with a fixed interest rate, is seen dropping below 2.0% from August next year and returning to target in 2024.

As widely anticipated, Sweden's central bank said that it would complete its current round of asset purchases, with total purchases steady in 2022.

While it gave no clear indication that it would soon start to factor in rate hikes, it remains possible that a first hike could be included in its next forecast round in November.


The output gap should close next year, with a positive gap of 1.4% of GDP emerging in 2023, the Bank said. But it attributed the near-term jump in inflation largely to the rapid increase in energy prices.

"The upturns are assessed to be largely temporary. During 2022, inflation abroad is expected to fall back and then to be close to 2%," the Riksbank said.

It also revised up its growth forecasts, predicting 2.4% quarterly growth in the third quarter. The Bank warned, however, that supply shortages would dampen near-term growth.

"Exports and industrial production recovered rapidly during the second half of last year and are now at higher levels than prior to the crisis. Going forward, they are expected to grow more slowly. The shortage of semiconductors and other intermediate good … will contribute to more subdued growth," the MPR said.

Unemployment was projected to decline only relatively modestly over the forecast period, falling from 8.6% in July to around 7.0% three years out, with analysis showing that long-term unemployment has continued to rise.