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Fast Comment SwedenRiksbank monetary policy decision

  1. The Riksbank on hold, as widely expected
  2. Cautious decision not to drive krona stronger
  3. Upward revision in medium-term inflation a sign of upcoming changes in policy stance
The Riksbank on hold, as widely expected
Fully in line with expectations, the Executive Board (EB) decided to keep the repo rate at -0.50 percent, as well as leaving its repo rate forecast unchanged. In the words of the Riksbank, this implies that the repo rate will "not be raised until the middle of 2018". No comments were made on the purchases of government bonds, which will continue throughout 2017. Also, the Riksbank has now implemented CPIF as a formal target variable and, for communication purchases, added a variation band around the target.
Cautious decision not drive krona stronger
As we have discussed previously, a cautious decision like the one we saw this morning follows the EB's reaction pattern of the last few years. Whenever the krona has strengthened substantially between meetings, that tends to outweigh other factors in the decision-making. This is the EB's way of lowering the risk of continued krona movements, potentially derailing the positive but fragile inflation trend.
Upward revision in medium-term inflation a sign of upcoming changes in policy stance
The Riksbank revised up medium-term CPIF inflation, in spite of a large change in the krona forecast dampening inflation. The higher inflation forecast should be seen in the light of continued strength in indicators on underlying inflation. But it also means that the EB views overshooting rather than undershooting of its target as the more likely scenario. In our view, this paves the way for an upcoming gradual change in policy stance, toward a slightly more hawkish tone. We stick with our forecast of a rate hike in April 2018.

 Inflation to overshoot in the medium term, expects the Riksbank

Source: Macrobond and Handelsbanken Capital Markets


Johan Löf

Senior Economist


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