Stockholm (Ekonamik) – “The interest rate is expected to be raised towards the end of the year or at the beginning of next year,” Sweden’s Riksbanken noted on Thursday , as it refused to cow to the bearish market consensus and held repo rates at -0.25%.
The monetary policy board of Riksbanken did take note of the trend, concluding that “low interest rates abroad and worsened sentiment mean that the interest rate is expected to be increased at a slower pace thereafter than in the previous forecast.”
Source: Riksbanken (April, July and August Board meetings)
However, the continued hawkishness was not expected. “The Executive Board of the Riksbank surprised yesterday by committing further to raising its policy rate around year-end,” commented Johan Löf, Senior Economist at Handelsbanken Capital Markets. “Near-term inflation prints have once again become key to monitoring monetary policy developments,” he added. “The board cited inflation having turned out as forecast as being an important reason it stuck with its rate rise plan, thereby playing down the previously all-important inflation outlook which should be hampered by the deteriorating real economy.”
Meanwhile, Swedbank Research’s Cathrine Danin, Åke Gustafsson and Knut Hallberg remarked that the hawkish statement was causing large movement in the markets. Having ended the Wednesday trading session at SEK1,581.161, Stockholm’s Nasdaq OMX index had climbed up to SEK1,597 by the end of Riksbanken’s decision day. Overnight Stibor fell from -0.148% on Wednesday to -0.159% on Friday, according to Nasdaq OMX. The three-month rate followed suit, falling from 0.024% to 0.012%. The SEK yield curve appears to have steepened. The three month treasury also fell, from -0.435% to -0.455%, in that. However the ten-year treasury increased from -0.33% to -0.199%.
Other banks meeting this week included the Bank of Canada (BoC) and the BoC who also held rates constant as well as the Central Bank of Chile (BCC), which cut rates, and the National Bank of Georgia (NBG), which raised rates.
Photo courtesy of Riksbanken
