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Risks of 50bp hike growing

RIKSBANK
  • Following this morning's further upward surprise to Swedish inflation, we reiterate the following from the Riksbank's April meetng:“If there are surprises in relation to the Riksbank’s forecast that are judged to be temporary, monetary policy would not necessarily need to be adapted. But if there is reason to believe that the development of inflation will deviate more persistently from the Riksbank's forecast, the Riksbank will react with tighter monetary policy to ensure that inflation returns to the target level.”
  • As we have just posted, Swedbank have been the first to change their base case to a 50bp hike in June.
  • We noted in the MNI April Riksbank Review: "Although this is an alternative scenario, we think it clearly signals that the Riksbank is comfortable considering rate hikes of 50bp if required , and despite the language in the statement pointing to the repo rate being “raised gradually going forward and that it will be somewhat below 2 per cent in three years’ time” that the Riksbank is including such a hawkish alternative scenario to prepare the market in case inflation expectations do start to drift upwards. There are no sell-side analysts looking for any 50bp hikes going forward, and we wouldn’t want to put 50bp hikes into our base case either, but we don’t think that the bar to 50bps is as high as some would suggest."
  • We would prefer to wait a bit longer before seeing 50bp as a base case for June (particularly after Floden and Breman were a bit dovish in the Minutes), but we certainly agree that the risks oof 50bp are rising.
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