Riksbank Preview: Rates going up in December?

After Riksbank gave clear indication in its September meeting, about the rates going up in either December or February, the December meeting will be watched clearly to put that commitment into test, according to Jonas Goltermann, developed market economist at ING.

Key Quotes

“We believe a further delay to the February meeting is the most likely outcome, though far from certain. This is based on the Riksbank’s previous reaction function, where any sign that inflation is not sustainably at target has led to policy loosening. The policy statement is likely to strengthen further the commitment to raising rates in February, though in practice there will always be some doubt about such promises.”

“If policymakers do raise the rate, we believe they will deliver a ‘dovish hike’ by simultaneously lowering the interest rate forecast (similar to Norges Bank’s September hike, and also to when the Riksbank ended its QE programme last December). The current rate path implies a total of three hikes by the end of 2019. In this scenario, we think the path would likely be shifted to indicate only two hikes are likely by end-2019.”

“With the outcome finely in balance, one thing we can be fairly confident about is that the decision will move markets around, especially with liquidity conditions impaired ahead of the holidays. Indeed, the one-week options implied volatility for EUR/SEK is at its highest level since the September meeting.”

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