Sweden: Riksbank keeps rates unchanged in October, continues to signal hike in December or February
At its 23 October monetary policy meeting, the Riksbank decided to keep the monetary policy rate unchanged at a record low of minus 0.50%, where it has been since 2016. It also upheld its previous decision to keep reinvesting redemptions and coupon payments in the Bank’s bond portfolio, following the official end of the Bank’s QE program in December 2017.
The Riksbank’s decision to stay put came due to largely unchanged assumptions for GDP and inflation since the September meeting. Although the economy continues to perform well and headline CPIF inflation (the Bank’s preferred measure, which assumes a fixed interest rate) rose in September, underlying inflationary pressures are still moderate. However, two members of the committee dissented and argued for an immediate rate hike, on the grounds of strong growth and the recent uptick in inflation.
The Bank reiterated its guidance that interest rates will rise by 0.25 percentage points in December 2018 or February 2019. It is unclear which month is more likely; on one hand, if headline and core price pressures continue to strengthen following September’s strong print this could boost the chances of a December hike, although the significant downward revision to GDP growth in H1 could swing the pendulum towards February.
As analysts at ING state: “In our view, a December or February hike looks like a genuine 50-50 decision at this point and probably comes down to the data between now and the December meeting”. Regardless of the timing, the coming monetary policy tightening is likely to be implemented in a gradual manner to avoid a sharp currency appreciation, and the Riksbank is sure to keep one eye on the evolution of the European Central Bank’s monetary policy.