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Riksbank minutes reveal hawkish tilt

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The Swedish Riksbank released the meeting minutes last week. Data showed that the first rate hike since July 2011 was inching closer. The central bank’s board was seen giving a broader backing for tightening monetary policy in the months ahead.

The Riksbank’s decision was divided as it kept its main repo rate unchanged at -0.50% and the board signaled that it would gradually start tightening policy in December or February next year.

At the previous monetary policy meeting, two members of the Riksbank were seen voting for a tightening in monetary policy at a faster rate. The meeting minutes showed that the dissenting votes came from Cecilia Skingsley a deputy governor of the Riksbank. Skingsley wanted the rate hike to come in as early as October. “I would … have preferred to see an unchanged repo rate path at today’s meeting,” Skingsley said, according to the meeting minutes.

The markets perceived the meeting minutes to be hawkish for monetary policy. This saw the Swedish krone to strengthen following the release of the minutes.

Stefan Ingves, the governor of the Riksbank, was seen to have a deciding vote. This was seen a cautious as the central bank approaching the tightening on a careful note. The deciding vote managed to offset the hawkish ballot from Skingsley.

While the markets were expecting the Riksbank to hike interest rates, the meeting minutes saw the markets shifting the expectations on rate hikes. The minutes were seen strengthening the basis for a rate hike.

Overall, the minutes suggested that the Riksbank was preparing the markets for a rate hike. The minutes showed that the Riksbank governor is noting the strong economy. He said that it was reasonable for Sweden to endure a faster pace of rate hikes.

The central bank was seen holding its benchmark interest rates at -0.50% since 2016.

Sweden’s Riksbank is now expected to push for higher rates compared to the European Central Bank.

Sweden’s Riksbank

The Riksbank minutes showed that the Governor Ingves commented that “My conclusion for monetary policy is that the time for a cautious normalization of monetary policy is approaching.”

On the flipside, Per Jansson who is a policymaker on the Riksbank’s board and known to have dovish inclinations noting that “sights are now firmly set on it being possible to implement the first rate rise in either December or February.”

“If the forecast is about right, my sights are now firmly set on it being possible to implement the first rate rise in either December or February,” Jansson said according to the minutes.

The comments come even as Sweden’s inflation was seen around 2.0% for the past 18-months. However, recent data showed that the underlying price pressures which strip out the volatile energy prices continued to trend down.

Inflation measure was seen around 1.2% in August 2018. The markets expect that the timing will be critical in regards to the forecast for the Riksbank’s inflation. This could potentially be one of the main factors that could bring some risks to the rate hike timing.

Data from the Statistics Office was seen revising the growth forecasts for the first half of the year. The markets viewed the minutes to be hawkish because of the weak inflation. Questions remain on whether the Riksbank will turn dovish if inflation weakens.

The Riksbank’s next monetary policy meeting is due on October 24.

Although the expectations incline for a rate hike, the markets are currently expecting the Riksbank to hike rates just once. This means that economists believe that the Riksbank will not be entering a policy tightening phase.

It is quite likely that the Riksbank could hike once and wait for the policy changes from the European central bank.

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