Riksbank: Negative for longer - Natixis

More than three years of negative repo rate has not been enough to push up Sweden’s inflation to the target in a sustained way and therefore, the Riksbank pulled down its rate path today, points out Ad Hoc Sweden, Research Analyst at Natixis.

Key Quotes

“More than three years of negative repo rate has not been enough to push up inflation to the target in a sustained way. Therefore, and as widely expected, the Riksbank pulled down its rate path today. The rate path was adjusted in line with our expectations in the short term but somewhat higher longer out. The new rate path no longer shows any likelihood for a rate hike in Q3 but indicates a hike in Q4. In the February report the rate path indicated some 30% probability of a hike as early as in July this year.”

“The Governing Board was split in its decision as governor Ohlsson (again) voted for a hike.”

“The inflation forecast was revised somewhat for 2018 but unrevised for 2019 and 2020. CPIF-inflation is forecast to average 1.9% in 2018 (previously 1.8%) and core inflation, i.e. CPIF excluding energy, is forecast at 1.6% in 2018 (before 1.7%).”

“We forecast that the Riksbank will lift its policy rate in Q4 2019, which is the same time as we foresee a first rate hike from the ECB.”