Riksbank likely to keep interest rate unchanged in February

The Swedish central bank, Riksbank, is set to meet next week for its interest rate decision. According to a Nordea Bank research report, the central bank is expected to keep the monetary policy unchanged. In spite of its unchanged monetary policy line, these are damaging times for the bank. According to most analysts, the Riksbank is expected to keep the repo rate on hold at 0.0 percent. Moreover, the bank is unlikely to provide any news about its purchases of government bonds. The rate path might have a higher endpoint at about 0.2 percent as the path now includes the first quarter 2023. Otherwise, the rate path should be intact.

After many years of solid growth and ultra-loose monetary policy, the Riksbank decided in December to hike its repo rate by 25 basis points to 0 percent. The rate hike was sanctioned in spite of an uncertain outlook for inflation and the economy. A significant explanation for the rate hike appears to be uncertainty regarding the effects on the economy if negative interest rates are seen as permanent. Another factor likely to have contributed to the decision is the bank’s wish to underpin the struggling Swedish krona.

“We expect the Riksbank to remain on hold for the foreseeable future. We see the repo rate unchanged at 0.0 percent both this year and next year. Also, we do not expect the bank to launch any other stimulus measures. One lifeline for the Riksbank is that CPIF inflation excluding energy, in our view, will hover around 1.5 percent this year and the next. Hopefully, this is “good enough” and “close enough”, as Governor Ingves expressed it at the monetary policy meeting in December when he talked about finetuning inflation”, added Nordea Bank.