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Sweden Monetary Policy December 2018

Sweden: Riksbank hikes rates in December, suggests further hike in H2 2019

At its 19 December monetary policy meeting, the Riksbank decided to hike its repo rate from minus 0.50% to minus 0.25%. The Bank had previously given guidance of a hike in either December or February.

The Riksbank’s decision to tighten its stance came despite falling CPIF inflation in October and November and still-subdued core inflation. The Bank judged that as CPIF inflation and inflation expectations are around the 2% target, and economic activity is healthy—notwithstanding a blip in Q3 driven mainly by temporary factors—the time was right to remove some monetary stimulus. However, despite the rate rise the Bank’s stance remains highly accommodative, and will continue to support growth.

In its press release, the Bank explicitly stated that the next rate hike will likely come in the second half of 2019. However, it adopted a more dovish tone than at its prior meeting and lowered inflation forecasts for the coming years. The Riksbank now sees monetary policy tightening more gradually than previously forecast going forward, with the repo rate expected to average minus 0.02% in Q4 2019, compared to plus 0.09% previously. By Q4 2021, the repo rate is expected to be a full 25 basis points lower than the Bank’s prior projection.

Sweden Interest Rate Forecast

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