Annette Beacher, Macro Strategist at TD Securities, expects the Riksbank to keep the key rate unchanged, although the general tone of the meeting could be tilted towards the hawkish side.
“The policy rate is unanimously expected to remain on hold at -0.50%, so the big question is what the Riksbank will do with its policy rate projections”.
“While the inflation outlook is improving, we think it’s still too early for the Riksbank to get overly comfortable and scale back its easing bias, in contrast to the more hawkish tone that it seems most analysts are expecting”.
“There has been a lot of talk that the Riksbank will move from pricing in 6bps of rate cuts to just 3bps of rate cuts, basically reverting to its September forecasts. We think that would be the upper end of what to expect though, as the last time the Riksbank forecast less than 3bps of rate cuts was in February 2015, when it cut its policy rate into negative territory for the first time at -0.10%, and forecast a -0.12% rate through to mid-2016. In the end though the Riksbank ended up delivering an inter-meeting cut just a month later”.
“We think that the Riksbank would be better off leaving the current policy rate projections unchanged, since while December CPIF was a touch stronger than expected, the trend in underlying inflation still looks quite soft, with CPIF ex-energy sitting at just 1.3% in Dec”.
“Given the fact that Riksbank policy can’t really veer too far from ECB policy without resulting in an unwelcome move lower in EURSEK, it wouldn’t be a bad idea in our view for the Riksbank to begin using the same language as the ECB, with a greater focus on underlying inflation than before”.
“Lastly, we look for a renewal of the Riksbank’s FX intervention mandate, which expires this week. Altogether, while we think that the Riksbank could come in a touch more hawkish than in December given the better news on inflation, we don’t think that it will be quite as hawkish as what markets are looking for”.