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Fast Comment SwedenRiksbank monetary policy decision: On hold and uneventful, as widely expected

  1. The Riksbank keeps rate at the lowest ever, -0.50 percent; refrains from changing QE
  2. Is the Riksbank close to ticking any boxes on to-do-list?
  3. Extension of FX intervention mandate for signalling purposes only
The Riksbank keeps rate at lowest ever, -0.50 percent; refrains from changing QE
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 forecast implies that the repo rate will not be raised "until the middle of 2018". Also in line with expectations, no decision was made on the purchases of government bonds (QE), which will continue throughout 2017. The Riksbank keeps the door open to an extension of the QE programme, saying the months leading up to its next meeting will provide "an opportunity to await further information that could affect a decision in December to possibly extend the purchases".
Is the Riksbank close to ticking any boxes on to-do-list?
At the press conference in September, Governor Stefan Ingves showed a three-point list, explaining why it is still too early to change the bank's monetary policy stance in a less expansionary direction. One point is that the Riksbank wants to see further evidence on broader cost pressures, providing lasting support for inflation close to target. The Riksbank seems more confident on this point now. The downward revision in core inflation (CPIFXE) that follows from the bank's recent forecast errors has been washed away in mid-2018 already, with the path reverting to the September forecast. This is in line with the recent upturn in unit labour costs and the Riksbank now says that "prices for services have increased rapidly, which reflects the way in which the strong economic activity is having a greater impact on the rate of price increases."
Extension of FX intervention mandate for signalling purposes only
The EB once again decided to extend the mandate that facilitates a quick intervention on the foreign exchange market. In our view, this is merely done to avoid sending an unintended signal of a starting point for changing the monetary policy stance. In the current macroeconomic environment, we consider it highly unlikely that the mandate will be used in practice. Deputy Governors, Martin Flodén and Henry Ohlsson, entered reservations against the decision on the FX mandate.

Disclaimer

Johan Löf

Senior Economist

Sweden

jolo22@handelsbanken.se

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