Riksbank keeps monetary policy unchanged, revises down GDP growth and inflation outlook

The Riksbank kept its monetary policy on hold today as widely expected. This signifies that the repo rate continues to be at -0.50 percent and that the QE program ends at the turn of the year. But the central bank has kept the door open for a QE-extension by stating “await further information that could affect a decision in December to possibly extend the purchases”. Furthermore, the repo rate path was kept unchanged, pointing to a first rate hike in mid-2018. The Governing Board was unanimous in its decisions.

The central bank made some revisions to the macro economic outlook. The inflation forecast was downwardly revised a bit with CPIF-inflation forecast to average 1.9 percent in 2017 and 1.8 percent in 2018. Core inflation is expected to come in at 1.7 percent this year and 1.9 percent next year. Meanwhile, the GDP growth was downwardly revised for this year but remained the same for next year.

Inflation in Sweden is expected to have peaked and is likely to decelerate going forward. According to Nordea Bank, inflation is forecast to undershoot the target in 2018 and in 2019. A change in policy stance by the central bank would strengthen the declining inflation trend through a stronger SEK. The Riksbank has investment a lot in attempts to gain credibility for the inflation target in the last few years.

“We stick to our forecast of a first rate increase in October 2018 and two additional hikes in 2019, leaving the repo rate at 0.25 percent at the end of 2019”, added Nordea Bank.

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