Riksbank likely to keep repo rate on hold in October, says Nordea Bank

Swedish inflation has been both high and low, and the Riksbank is not comfortable with this trend, noted Nordea Bank. Thus, the central bank is expected to give soft signals in its upcoming monetary policy decisions next week.

In 2017, inflation in Sweden has been surprisingly high. The headline inflation reading for August was also slightly higher than expected, mainly because prices of energy rose more than anticipated. But, this trend reversed in September. The CPIF measure, excluding energy, came in at 1.9 percent year-on-year and 0.3 percentage point below the central bank’s forecast.

Inflation is volatile and might rebound in the next few months. But if the projection proves accurate, the underlying inflation, stripping energy, will not reach 2 percent during this cycle, stated Nordea Bank. If inflation does not reach 2 percent in the next few months, the likelihood falls further as imported inflation would be lower next year. According to Nordea Bank, inflation is expected to slow down to 1.5 percent in the first half of 2018.

“We expect the Riksbank to leave the repo rate unchanged at -0.5 percent next week. No changes to the asset purchase programme will be announced, and it will thus be phased out in December”, added Nordea Bank.

The Riksbank is expected to probably signal its first rate hike in mid-2018. The end level of the rate path is expected to be raised slightly to around 0.75 percent as the interest rate path now covers the period up to and including fourth quarter of 2020.

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