Riksbank stands pat, likely to hike interest rate in December 2018

The Riksbank met today for its monetary policy decision. The central bank kept the policy on hold, as was widely anticipated. It hinted at a rate hike at around the turn of the year. According to a Nordea Bank, it might hike its interest rate in December.

The message from Riksbank today was consistent with expectations. The rate path was also unchanged today. The central bank did not announce any changes in the QE program. The end point of the Riksbank’s rate path was hiked to 1.23 percent as the path now covers the period through the fourth quarter of 2021.

The rate path of the Swedish central bank’s rate path shows that a rise in interest rate during the end of this year is almost as likely as one in early 2019. There was no specific guidance for the timing between December and February in the report not during the press conference.

“We expect the minutes, due out 2 November, to indicate that December is the main alternative for the first rate hike, but for now the timing of the first rate hike is a bit more uncertain”, stated Nordea Bank.

The Riksbank kept the economic forecast almost the same, except for the projection of GDP that was lowered for this year. Inflation remained roughly the same for the months ahead.

Meanwhile, the central bank’s rate path suggests a second rate hike by mid-2019. By then, inflation might begin to ease and the outlook might deteriorate, preventing the Riksbank from continuing to normalize monetary policy.

Moreover, GDP growth is expected to decelerate as households might tighten their purses and residential construction drops, making the longer-term inflation outlook uncertain, stated Nordea Bank.

“We nevertheless expect the Riksbank to hike rate in December 2018. A second rate hike is long lasting (December 2019) as inflation will be too low next year, we think”, added Nordea Bank.