Riksbank keeps a minor easing bias

As expected the Riksbank left the repo rate unchanged today and, more importantly, kept a small short-term easing bias. We had expected the Riksbank to remove the easing bias completely. Longer out, the repo rate path was kept unchanged and thus still dates the first rate hike to Q4 2014.

As expected, the board was split in its decision to leave the repo rate unchanged with new Dep. Governor Flodén voting for a repo rate cut by 25 bps and Dep. Governor Ekholm with 25 bps.

The economic outlook presented is similar to Nordea’s view. As expected, the unemployment rate was revised downwards to 7.9 % for 2014 (8.1% in July) and 7.2% in 2015 (from 7.3% in July). Otherwise no major revisions and inflation forecasts were left unchanged.

On the back of an improving economy we expect that the next step from the Riksbank will be a rate hike in April 2014. In addition, household credit growth is currently on an upward path and this remains a headache for many governors in the Riksbank’s board. In the press release, the Riksbank welcomed the clearer framework for financial stability matters. “How monetary policy is affected…will depend on both economic development and financial stability and the risks linked to household’s high indebtedness”, they state

In total we forecast two rate hikes in 2014, leaving the repo rate at 1.50 at year-end, and two rate hikes in 2015, leaving the repo rate at 2.00 at year-end. The main reason for the very gradual rate increases is the low inflation pressure.

Initial market reactions: Somewhat dovish since easening bias still in the path. SEK weaker, rates down in the front-end 4-5 bp



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