Sweden: Riksbank with no drama

Fully in line with expectation, the Riksbank left the repo rate unchanged at 0.75%. The repo rate path was left unchanged too, which means that they intend to stay on hold until Q1 2015 when the first rate hike is pencilled in. The Riksbank also keeps a small short-term easing bias (16% likelihood of a rate cut at next meeting). As in December, the board was unanimous in its decision.

The macro-economic projections were largely left unchanged and we see no major deviations from our own forecast for 2014. Inflation, growth and unemployment were largely unrevised for 2014. The CPIF-inflation is now forecast at 0.9% in 2014 (1.0% in December) and 1.8% in 2015 (unrevised from December). Our forecast stands at 0.9% in 2014 and 1.5% in 2015.

We stick to our view that the Riksbank will hike in October 2014. Risks are tilted towards later rather than sooner hikes. The outcome very much hinges on forthcoming macro-prudential policies in our view. We do not expect additional macro-prudential measures that will shake the housing market. In the absence of such policy measures and with a continued upward pressure on the housing market, indebtedness may very well pop up on the Riksbank’s agenda again later this year.

Initial market reactions: Muted reaction in rates and FX.

Repo rate forecast (December in parenthesis)

2014Q1 0.75% (0.73%)
2014Q2 0.72% (0.71%)

2015Q1 0.89% (0.89%)
2016 Q1 2.10% (2.10%)
2017 Q1 2.71% (na)