RIKSBANK: Few Signals On Near-term Rate Path From Thedeen, But ZIRP Discussed
Not really any new signals from Thedeen compared to what was communicated in the November meeting minutes. The rhetoric is consistent with a slowing (but still consistent) pace of easing into 2025, as the Riksbank judges external uncertainties and the impact of its past rate cuts. Inflation currently tracks a little above the September MPR projections. This won't derail a December (or Q1 2025) cut, but my factor into whether the Central Bank can cut rates below neutral a little later in 2025.
Key excerpts from the speech summary:
- "It is important to emphasise that there is now also greater uncertainty about developments going forward".
- "If the outlook for inflation and economic activity remains the same, we can continue to cut the policy rate in December and during the first half of 2025, in line with what we communicated in September".
- "But if the conditions change, this may justify a higher or lower interest rate in the period ahead",
- "“Productivity is crucial for a country’s prosperity and GDP growth"..."Over the past 30 years, productivity growth in Sweden has been stronger than the European average, while public debt has been significantly lower",
- He also noted that productivity growth is important for monetary policy.
Separately, Thedeen also noted that "it is not impossible that, in the future too, we will end up in a situation where the economy needs to be stimulated but the policy rate is close to 0 per cent". In such a scenario, the three options outlined were:
- "One option for the Riksbank would then be to cut the interest rate to a little below zero, although a negative interest rate is associated with uncertainties and risks"
- "Another possible measure would be to purchase securities. The threshold for such purchases, particularly purchases of private securities, will be high"..."however, it cannot be ruled out in advance that situations may arise in which securities purchases may be an appropriate monetary policy tool".
- "Another option is for fiscal policy to take a more active role in stimulating the economy", but "I do not believe that formalising coordination between policy areas is a solution".