Riksbank: Waiting for the ECB - ING

The latest Riksbank minutes paint a fairly optimistic picture of the economic outlook in Sweden and as growth remains solid, inflation has returned to target, and the global upswing underway should provide a tailwind for the Swedish economy in 2018, according to analysts at ING.

Key Quotes

“The only cloud on the horizon is the sharp fall in the housing market this autumn, and even that cloud has a silver lining in the Riksbank’s view. That means it is natural for the Riksbank to start moving towards a tighter policy stance. The decision in December to end the QE programme was the first step in that direction, although the reinvestment policy adopted means the Riksbank’s balance sheet will continue to expand in 2018.”

“Whilst the committee is becoming more divided, the Riksbank will now most likely wait to make its next move until there is more clarity on the ECB’s intentions. That is only likely to come in June. If, as we expect, the ECB extends QE beyond the current end date in September and signals a rate hike only in mid-2019, we think it will be difficult for the Riksbank to stick to its current interest rate forecast. A first full hike is expected in Q4 with a smaller probability for the first hike in Q3.”

“At most, it could dip a toe in the water by increasing the policy rate by 10bps to -0.40%. Should the ECB turn more hawkish by the summer, that may very well open doors for the Riksbank to start hiking sooner as well.”