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Swedish Rate Wrap

Sweden Comment — Preview of August inflation

  1. No further rise in August, but the inflation rate remains elevated after spikes in recent months
  2. Plenty of tricky components in August, but the infamous package tour prices should be well-behaved this time
  3. Robust underlying inflation to move the Riksbank's policy sooner than it says, we argue

Johan Löf, Senior Economist | jolo22@handelsbanken.se

Swedish Rate Wrap — The Riksbank’s route to normality

Inflation during the summer was significantly higher than the targeted 2 percent. While inflation is currently affected by changes in methods that are providing positive impulses, underlying inflationary pressure is also on an upward trend. As the Riksbank's September meeting approaches, external factors also appear to be providing some impetus. Despite this, we anticipate a "wait-and-see" meeting. However, later this autumn, we expect that the Riksbank will need to start changing course. We are setting a roadmap for a rate increase.

Andreas Skogelid, Strategist | ansk03@handelsbanken.se

Swedish Rate Wrap — Riksbank not rocking the boat, despite record high inflation

This summer has offered several pieces of evidence that Sweden's economy is performing strongly. Second-quarter GDP was significantly higher than seen during the first three months and the July rate of inflation exceeded 2 per cent. Regarding the latter, we are convinced that this is of a temporary nature. The extremely expansionary monetary policy is becoming more and more difficult to explain. On the other side of the scales are a stronger krona and the ECB. However, ahead of the Riksbank's September meeting, we think that any potential hawks on the Executive Board will keep a low profile, and we don't anticipate any news about the repo rate path or any other essential communication.  For more details, see page 3.

Andreas Skogelid, Strategist | ansk03@handelsbanken.se

Swedish Rate Wrap — Repo rate? Keep an eye on the ECB

In early July, the Riksbank announced a repo rate decision that was more or less in line with our expectations. Even though the probability of an even lower rate was removed from the repo rate path, the central bank is hedging its bets by writing that the repo rate may be lowered if the situation changes. For us, the tactics are clear: the Riksbank's normalisation process is dictated by the actions of external players, particularly the ECB. In our view, the repo rate will be lifted in April 2018, marginally earlier than signalled by the Riksbank. For more details, see page 3.

Andreas Skogelid, Strategist | ansk03@handelsbanken.se

Swedish Rate Wrap — Summer in a perfect world

With midsummer just round the corner, stock markets are at record highs, implicit volatility is at a record-low level, and bond yields are slowly but surely ticking downward. Neither the Fed's rate hikes nor the promised balance sheet reduction appears to be giving investors any qualms. A declining oil price is the clearest threat to a peaceful holiday period.

The half-year accounts are approaching for the Riksbank, with its repo rate decision early in July. Inflation and inflation expectations have moved in the right direction in the first half of the year, but it is far too early for the Riksbank to move clearly towards normalisation. Both the repo rate and the bond purchase programme will therefore remain unchanged. However, we believe that the likelihood of the repo rate falling further via the repo rate path will disappear.

Changes in the measurement method for package holidays have had a favourable impact on inflation during the spring. However, we think that this will be reversed in the autumn.

Andreas Skogelid, Strategist | ansk03@handelsbanken.se

Swedish Rate Wrap — Brighter prospects for the European banking sector

The banking sector in the eurozone has long been struggling with structural problems. A high proportion of non-performing loans, low capitalisation and bank-specific trouble spots have hampered lending operations. A solution is now close at hand for the Italian bank Monte Dei Paschi, while the Spanish problem bank Banco Popular has been taken over. The sector as a whole is also moving in the right direction and the economic recovery in the eurozone is providing support. 

Andreas Skogelid, Strategist | ansk03@handelsbanken.se