RIKSBANK WATCH: 25BP Jan Cut Largely Priced In, Split LIkely
MNI (LONDON) - Markets have largely priced in another 25-basis-point rate cut by the Riksbank at its January meeting, though Governor Erik Thedeen has stuck to a cautious line in public comments, and policymakers appear divided over whether to act now or wait until later.
Most analysts also expect a cut this week, but minutes from the five-strong Riskbank Executive Board’s December meeting suggested the possibility of a split, highlighting divisions among members over whether to wait until the expected recovery in activity takes hold.
The RIksbank has outpaced its peers in the cutting cycle, lowering the policy rate by 150 basis points since May to 2.5% in December. Guidance last month was that the “policy rate may be cut once again during the first half of 2025.”
That implied that the cut could come either at January’s interim meeting or else in March, when it would accompany the quarterly forecast round. A softer-than-expected December inflation print helped shift external expectations to January.
SPLIT VIEWS
The board's December minutes however revealed cracks between policymakers' views. On the activist end, First Deputy Governor Anna Breman contemplated a fifty-basis-point cut but ended up backing 25bp along with "a further cut of 0.25 percentage points at the beginning of 2025”, while Deputy Governor Per Jansson said the next cut "needs to come quite early in the year, in January or possibly at the meeting after that in March."
But Deputy Governor Anna Seim advocated delay, stating that the board "should examine the effects of the policy already implemented on the economy before deciding on our next step."
Deputy Governor Aino Bunge was even handed, saying that she could imagine a January cut while also noting that it was important to consider the delay between rate cuts and their impact on the economy.
Thedeen has been studiously non-committal. In a Jan 15 speech he stuck to the line that it was likely that the interest rate would be cut once more in the first half of the year, noting that while inflation was a little softer than the Riksbank had expected in December, price pressures had risen slightly and the krona had weakened. (See MNI INTERVIEW: Riksbank Head Sees Policy Risks Balanced)
A split is on the cards in January, with dissenting votes likely against whichever decision is taken and with a possibility that Thedeen could even end up on the losing side.