Johan Löf, Senior Economist for Sweden at Handelsbanken Capital Markets, noted that while the decision was not surprising, “other elements partly surprised the market. Today’s policy announcement was more hawkish compared to our expectations, but our interpretation of surveys and commentary was that analysts were split roughly 50/50 on whether the Riksbank would soften the tone,” the economist explained. “At the same time, market participants appear to have been leaning more clearly toward a dovish decision, similar to our anticipation, judging by pricing, which points to a decrease rather than an increase in the repo rate around year-end. All told, the slightly hawkish surprise strengthened the krona and pushed interest rates higher.
However, Cathrine Danin, Matilda Kilström and Knut Hallberg, senior economists at Swedbank Research took the opposite view. “At the same time, its press release leaned to the dovish side with the Riksbank stressing that it’s prepared to adjust monetary policy if needed. We are sticking by our forecast that the repo rate will be raised in December, but with a risk that the hike could be delayed.”
All in all, with the benefit of hindsight and access to the minutes of the meeting, I’d have to agree with Löf at Handelsbanken. According to the minutes, “there were some differences of opinion as to exactly when it might be appropriate to raise the rate next time,” despite the unanimous support for the decision at the beginning of July. This default position that the next rate move should be upwards is a defiantly hawkish stance, despite the changing mood across central banks. As Löf puts it, the “Hawkish Riksbank will eventually find that it must cancel planned rate rises.”
Photo courtesy of Riksbanken