Riksbank keeps monetary policy unchanged, likely to hike in February 2019

The Riksbank kept its monetary policy on hold today as expected. This signifies that the repo rate was unchanged at -0.50 percent and that the repo rate path was untouched, indicating towards a first rate hike in mid-2018. The Governing Board was split in its decision as governor Ohlsson voted for a hike.

The unrevised repo rate path, along with the downwards-revised inflation projection might signify as slightly hawkish. Meanwhile, the press release was rather soft. The central bank stated that “that slow repo rate rises are set to be initiated during the second half of this year”. Earlier the central bank had stated that gradual hikes as from “mid-2018”. Therefore, one might see a revised repo rate path in the wording, but not in reality, stated Nordea Bank in a research report.

One might argue that the central bank has several reasons to begin turning away from its loose monetary policy. The upswing in global economy carries on, while interest rates have increased accordingly. Domestically, the resource utilization is high, inflation continues to be close to the target and expectations appear to be anchored. However, these factors would not be sufficient for the central bank to change stance, stated Nordea Bank.

“Inflation has most likely peaked and we forecast a decline of inflation going forward. We forecast inflation to undershoot the target in both 2018 and 2019. We stick to our forecast of the first rate increase in February 2019, followed by another one later that year, leaving the repo rate at 0.00 percent at the end of 2019. However, today’s decision increases the likelihood for an earlier rate hike than we have in mind”, added Nordea Bank.

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