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Fast Comment SwedenNormalisation argument embodied – Riksbank's September announcement

  1. Riksbank stands firm on next rate rise, but eases hiking tempo thereafter sharply
  2. Another step toward a negative policy rate remaining for years to come
  3. In the shadow of a determined Riksbank, business sector production still holds up, for now
Riksbank stands firm on next rate rise, but eases hiking tempo thereafter sharply
At its September meeting, the Riksbank surprised by delivering mixed changes to its monetary policy stance. On the one hand, the repo rate was kept unchanged at -0.25 percent and the Executive Board decided to stand firm on its next planned rate rise being delivered "towards the end of the year or at the beginning of next year". On the other hand, the Riksbank flattened the rest of its repo rate forecast sharply, removing more than two of the rate rises foreseen until 2022. That means the Riksbank now forecasts the repo rate to reach 0.37 percent by Q3 2022 (see graph). The decisions to stay on hold today and to flatten the latter parts of the repo rate path were widely anticipated by analysts. However, it was surprising that the Executive Board would stick to a rate rise around year-end, and the krona strengthened on the announcement.
Another step toward a negative policy rate remaining for years to come
While the Riksbank revised its macro forecast in the direction of a weaker economic outlook, it remained determined to raise the repo rate once more. This could be interpreted as a wish to normalise monetary policy somewhat after the unconventional measures following the GFC; another rate rise would spell the end of negative policy rates – for now, anyway. We expect the economy to cool more than the Riksbank is forecasting. Hence, we stick to our view that further rate rises will be called off and that the repo rate will stay put at -0.25 percent at least through 2021.
In the shadow of a determined Riksbank, business sector production still holds up, for now
See graphs and comments below.

Normalise soon, but maybe not hike ahead? The Riksbank's repo rate forecast 


July business sector production: A rebound as we had expected 



But growth will dampen ahead, and we think the Riksbank is too optimistic about the GDP outlook, and hence also inflation




Disclaimer

Johan Löf

Senior Economist

Sweden

jolo22@handelsbanken.se

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