Instant view: As widely expected the Riksbank left the repo rate unchanged today. They also kept a small short-term easing bias, which we also expected though this was less certain. More importantly, however, the repo rate was revised down somewhat longer out. They now forecast the repo rate to average 1.15 per cent in Q4 2014, while the previous forecast stood at 1.25 per cent. Longer out the repo rate path was left unchanged.
As expected, the board was split in its decision to leave the repo rate unchanged with Dep. Governors Ekholm and Flodén voting for a repo rate cut by 25 bps.
The macro-economic projections were revised pretty much in line with expectations. We see no major deviations from our own forecasts. Inflation, growth and unemployment were revised down marginally for 2013 and 2014.
Although household indebtedness remains a concern for a majority of the governing board, the pressure seems to have eased somewhat. In the press release, the Riksbank states that. “Once measures have been taken in the field of macro-prudential policy, the risks linked to household debt can be assumed to decline. This will have an impact on the conditions for monetary policy, but it is difficult to determine as yet how much and how quickly”. Both house prices and credit growth are currently, however, on an upward path.
Today’s message from the Riksbank was rather soft and clearly puts our forecast, with a rate hike already in April, next year at risk. We will soon have a look at this forecast in more detail – stay tuned.
Initial market reactions: Muted reaction in rates and FX.
Nordea