REPEAT: STATE OF PLAY: Riksbank Weighs Tilting To Dec Hike

Repeats Story Initially Transmitted at 11:15 GMT Oct 19/07:15 EST Oct 19

--MNI Estimate Riksbank Put 50% Chance Could Hike Dec; 90% Feb

By David Robinson

     LONDON (MNI) - The Riksbank is set to leave policy unchanged at its October

meeting with the spotlight on whether its policy rate projections will tilt the

odds in favour of a December hike.

     Last month, the Executive Board's rate path showed no change in October and

a hike "in December or February." 

     Its collective rate projection offered no steer towards one or the other

meeting and, with no November meeting, if the board is set for a December hike

it will have to provide a steer at this month's meeting or risk springing a

surprise.  

     The Bank's projections show average quarterly policy rates, allowing the

probability of a policy change at individual meetings to be estimated. MNI's

best judgement is that the September projections put a 50% chance on a 25 basis

point hike in December and a 90% cumulative probability of a 25 point increase

in February.

     Those odds left observers hanging on whether December or February was more

likely. Governor Stefan Ingves, however, is in favour of policy transparency.

     "Given the fairly long period of negative interest rates we have had, I ...

think that it is a good idea for us to indicate, in an orderly fashion, where we

are heading," he said in September.

     It would be odd, therefore, if the board does leave things wide open over

whether there will be a December or February hike. But the six member board has

been split down the middle over the policy outlook.

     --BOARD TIMING SPLIT

     At the September meeting, Deputy Governor Henry Ohlsson dissented and voted

for an immediate 25 basis point hike. His colleague Martin Floden said that he

would rather that the collective rate path had indicated that an October hike

was likely. Those two both looked nailed on to vote for an October hike.

     Floating voteR Cecilia Skingsley was previously open to an October hike,

which was effectively ruled out by the board's revised September projections.

     Skingsley said that she would have "preferred to see an unchanged repo rate

path" at the September meeting, leaving an October  hike as a possibility, and

she has subsequently sounded sympathetic towards a December increase.

     The other three members, including Governor Ingves, had previously focussed

instead on the softness of core, and notably services, inflation and had sounded

in no great rush to hike.

     The rise in core inflation in the September data, along with the increase

in services inflation to 2%, appears to answer the concerns of the more dovish

members of the committee -- although over-interpreting one month's data is

always risky.

     --CHRISTMAS GIFT

     With Ingves having a casting vote in the event of a tie, he is ideally

positioned to make the call on whether to use the October forecasts and

projections to signal a December hike.

     The belief that the bank will move in December has become increasingly

widespread among analysts and market participants. 

     While Ingves himself may have had no strong preference for a December hike,

as opposed to a February hike, his belief in clear communication will put him

under pressure to indicate this month's meeting whether market expectations are

well founded. 

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

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