Riksbank preview: Holding pattern until winter – ING

Jonas Goltermann, Developed Market Economist at ING, suggests that the October meeting of Riksbank is likely to prove less interesting, with policymakers reiterating their previous stance.

Key Quotes

“Given that seven out of the previous eight months had seen core inflation below the Riksbank’s forecast, this will be a relief to policymakers.”

“But the good news on inflation must at least partly be offset by signs that the Swedish economy is slowing down. 2Q18 GDP was revised down materially (by a total of 0.8% including changes to previous quarters) after the Riksbank’s last meeting. And the latest data on the housing market also suggests that troubles there are not yet over – prices fell in September, and supply remains at record highs even as fewer housing units are being sold.” 

“The labour market data also suggests the Riksbank’s forecast for the economy is a bit on the rosy side. Unemployment over the past couple of months has come in a bit above expectations as employment growth has slowed. And wage growth, currently at 2.6%, has (yet again) disappointed and looks unlikely to reach the 3% the Riksbank is hoping to see by year-end.” 

“In addition, the global risk environment will continue to worry policymakers, not least Governor Ingves who will just recently have returned from what seemed like a pretty gloomy IMF annual meeting.”

“On balance, we think the positive news on inflation probably outweighs the marginal bad news on other issues for Riksbank policymakers. This means they will likely stick closely to the language agreed in September, keeping its options open.” 

“Given that an unchanged stance brings the rate hike one step closer, this could easily be seen a marginally hawkish meeting – especially if there are any hints that policymakers are leaning towards a December hike.”