As widely expected the Riksbank cut the repo rate by 25 bps to 0.75%. Notably, the repo rate path was revised down substantially. They keep a small short-term easing bias (16% likelihood of a rate cut at next meeting) and also push forward the first rate hike until Q1 2015. The board was unanimous in its decision to cut the repo rate and also on the repo rate path, which indeed hasn’t happened for a long time.
The inflation forecasts were revised down. The CPIF-inflation is now forecast at 1.0% in 2014 (1.3% in October) and 1.8% in 2015 (1.9% in October). Our forecast stands at 1.1% in 2014 and 1.4% in 2015. Otherwise, the macro-economic projections were only marginally revised. GDP-growth is expected to pick up while unemployment is expected to decline slowly.
No doubt today’s message from the Riksbank was soft and puts our forecast with a rate hike in Q4 2014 at risk. In the trade-off between pushing up inflation short-term and not letting credit growth go again the Riksbank apparently now favoured the former. But the trade-off is still there and the Riksbank will not ignore households’ indebtedness going forward. In the press release it is stated that “households’ high indebtedness remains a risk to sustainable long-run development”. Important is that they argue that “several policy areas need to cooperate to manage these risks”.
Repo rate forecast (October in parenthesis)
2014Q4 0.71% (1.15%)
2015Q4 1.88% (2.24%)
2016 Q4 2.6% (2.88%)
Nordea