Andreas Wallström, Research Analyst at Nordea Markets, point out that the Riksbank left its rate path untouched today on expected lines and continues to signal a fairly high likelihood of a rate hike in Q4 2018.
Key Quotes
“The rate path implies as 40% likelihood for a 25 bps hike in October. Longer out, the end point was raised to 1.15 % as the interest rate path is now covering Q3 2021 (previously 1.01% in Q2 2021).”
“The Governing Board was split in its decision as governor Ohlsson (again) voted for a hike. Also, governor Flodén made a reservation against the rate path in the short end. He advocated a rate path that signalled a rate hike by 25 bps already in September/October.”
“The inflation forecast was revised somewhat higher for both 2018 and 2019. CPIF-inflation is now forecast at 2.1% both in 2018 and 2019. Core inflation, i.e. CPIF excluding energy, is forecast at 1.6% in 2018 (unchanged compared to April) and 2.0% in 2019 (previously 1.9%). As expected the macro projections were otherwise left largely unrevised.”
“One could argue that the window now is open for the Riksbank to turn away from its loose policy.”
“In our view, however, these factors will not be enough for the Riksbank to actually deliver a hike already later this year.”
“Overall we continue to see core inflation below the target in both 2018 and 2019.”
“We expect that the Riksbank will revise down the rate path in September. By then it will be more evident that GDP growth is slowing down, which will raise concerns about the inflation outlook.”
“We stick to our forecast that the Riksbank will lift its policy ratein Q4 2019, which is the same time as we foresee a first rate hike from the ECB. In the report, the bank also mentions factors that can delay rate hikes, notably higher trade tensions and also that expectations of the ECB has shifted towards later rate hikes. Nevertheless today’s decision put some upside risks to our forecast and we can certainly not exclude a rate hike already this year.”
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