Analysts at TD Securities note that the Riksbank left its policy rate unchanged at -0.25% as unanimously expected, but also left its rate projections entirely unchanged, which was on the hawkish end of expectations.
Key Quotes
“Since inflation was in line with the Riksbank’s forecasts over the last couple of months, there was nothing domestically screaming for easier policy. But we had thought that the substantial shift in Fed and ECB expectations would have seen the Riksbank push back its first rate hike, as they’re often quite sensitive to shifts in global monetary policy.”
“Inflation forecasts were little changed, although 2020 GDP was revised down by 0.3ppts to 1.6%. Risks seem to lie even further to the downside though, as the Riksbank hasn’t factored in growing trade tensions: “it is very difficult to quantify such a scenario in a forecast and it is therefore largely outside of the forecast described in this report.”
“Although the Riksbank left its policy rate forecasts unchanged today, it does seem to be laying the groundwork for a shift. In its opening statement, it noted that, “The downturn in international bond yields can indicate that global interest rates going forward will be low for a longer period to come… If the conditions for inflation were to change, monetary policy will be adjusted.” We think that the Riksbank is just buying time at the moment, waiting to see what the Fed and ECB are actually going to do, rather than just what markets are pricing in, ahead of a bigger rethink in policy rates at the September meeting. We still believe that there’s a strong probability that the Riksbank reverts to a small easing bias at that time.”
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