The minutes from the monetary policy meeting on Dec 16 clearly shows that the continued downside surprises to inflation has become a concern and all the board members discuss in length their interpretation of why inflation has undershot the target and for how long this can be tolerated to continue. Since we expect inflation to continue remain low going forward and slightly undershoot the Riksbank’s forecast over the next 6-12 months we think that downward pressure the repo rate path will remain at monetary policy meetings in the first half of this year, although our main scenario is still unchanged repo rate throughout the year.
The majority of the board is concerned about credit growth but the strategy has shifted away from using monetary policy to limit credit growth in favor of persuading other authorities to take necessary measures. Still, several board members indicate that the repo rate decision was difficult due to financial stability concerns. The board members differ in their assessment over, how large problems the undershooting of the inflation target is and while many board members express concerns over the broadly based nature of the low inflation, most board members take seem to assess that long term inflation expectations are in line with the inflation target, but need to be monitored closely going forward. Ekholm and Flodén indicate that they could concider cutting rate again.
SEB