Riksbank: Dilemma remains the same - ING

Jonas Goltermann, Developed Market Economist at ING, suggests that for the Swedish central bank, the current situation is drearily familiar as the Swedish growth is strong, but risks are clearly skewed to the downside both at home and abroad.

Key Quotes

“Underlying inflation remains stubbornly low, with no clear upward trend. And ECB continues to keep policy setting loose – no interest rate change is likely until the autumn of 2019.”

“This puts the Riksbank in a tough spot. There’s no doubt the committee would like to start raising rates, and a 10 basis point hike in December, consistent with the Riksbank’s current interest forecast, cannot be excluded.”

“But given how adamant policymakers (at least the majority of the MPC led by Governor Stefan Ingves) have been that inflation needs to return sustainably to target before monetary stimulus is withdrawn, the likelihood is that the continued weakness in underlying inflation will cause them to delay the first rate hike into 2019.”

“We expect a move in that direction at the 6 September policy meeting, though divisions on the committee make it difficult to judge how the communication will play out.”