Today’s minutes did not add much new information regarding the reasons for the rate decision. As indicated by the rate path, the discussion confirmed that 0.25 is not a floor for the repo rate.
At its most recent policy meeting (decision published 3rd July) the Riksbank cut the repo rate by 50 bps down to 0.25 percent. The repo rate path was also significantly revised downward and now contains a 30 % probability for an additional 10 bps rate cut and a first rate hike in Q4 2015.
Today’s minutes did not add much new information regarding the reasons for the rate decision. The unexpectedly low CPI turn-outs were by several members seen as an indication of a lower than expected underlying inflationary pressure, but this was well communicated in the policy report. Also, the feeling of urgency to bring inflation back toward the target within a reasonably short period of time was previously known as was the influence of ECB’s recent dovish turn. Governor Ingves noted that the degrees of monetary policy freedom for a small open economy are limited and that rate hikes in Sweden therefore probably only can start after other major central banks, such as BoE and Fed, has started to hike rates.
Both Ingves and Skingsley expressed the view that 0.25 should not be seen as a floor in the repo rate, and that compared to 2009 (when the repo rate also was lowered to 0.25 %), new knowledge on how an economy works in a close-to-zero rate environment means that the Riksbank is more comfortable to try even lower rates if warranted by the economic outlook. That said, the high 0.8% CPIF y/y last week has clearly reduced the chances of an additional rate cut. In particular since the Riksbank has a very low CPIF forecast (0.28% y/y in August) leading in to the autumn monetary policy meetings.
Nordea