Riksbank is likely to keep to repo rate on hold in September

The Swedish central bank is set to meet this week for its interest rate decision. According to a Nordea Bank research report, the Riksbank is expected to keep its repo rate on hold. The central bank is also expected to keep QE- programme unchanged. Nevertheless, the Riksbank is expected to lower the interest rate path. The central bank has indicated a reform of the monetary policy operational framework. However, that might be announced during a later meeting.

Looking at the forecasts for Sweden, the CPIF inflation in July including and excluding energy were 0.2 percentage point and 0.1 percentage point higher, respectively, than the central bank’s view. Nevertheless, inflation is likely to come in below Riksbank’s view in the near term.

The central bank might revise down its economic growth forecast by some tenths of a percentage point both in 2019 and 2020. Moreover, inflation expectations have begun giving the central bank cause for concern. The trend is downwards, which signifies that the core of the monetary policy is threatened.

“In summary a rate hike from the Riksbank seems to be off the table. Instead the probability of a rate cut increases day by day. The weak exchange rate of the krona and the inflation outcome in line with the Riksbank's view indicate that the Riksbank is not in a hurry, though. The lowering of the interest rate path on 5 September will be the first step of many towards reconsidering the monetary policy line”, added Nordea Bank.