Riksbank Still Signals Rate Hike In H2 2019 And Beyond

Sweden's central bank left its key interest rate unchanged in February on lower growth and near-target inflation, after raising it in December, and reiterated the rate would be hiked in the second half of the year and beyond. The Executive Board decided to hold the repo rate unchanged at -0.25 percent, the Riksbank said in a statement on Wednesday. The decision was in line with economists' expectations. The quarter-basis point December hike was unexpected and was the first since July 2011. Swedish interest rates entered negative territory in early 2015. The hike was decided in a split vote as Deputy Governor Per Jansson entered a reservation against the decision to raise the repo rate and was not in favor of the repo-rate path.

Per Jansson did not participate in the February policy session due to personal reasons. "The strong economic activity and rising cost pressures both in Sweden and abroad mean that the conditions are good for inflation to remain close to the target in the coming years," Riksbank said. "This outlook has not changed to any great extent since December."

That said, several factors suggest that monetary policy needs to proceed with caution, the central bank added. The trimmed the growth forecast for this year to 1.3 percent from 1.5 percent predicted in December and the outlook for next year to 1.9 percent from 2 percent. The inflation forecast for this year was raised to 2 percent from 1.9 percent, while the projection for next year was left unchanged at 1.8 percent. Even after a hike in the second half of 2019, the bank said the rate needs to be raised at a slow pace, roughly twice a year by 25 basis points each.

"However, there is uncertainty over developments abroad and the strength of domestic demand," the Riksbank said.

The bank's projections showed the repo rate turning positive in 2020 and reaching 0.8 percent in 2021. Repo rate path was unchanged from December. The central bank also stressed on the need to have measures within housing and tax policy to reduce the risks associated with the high debt of Swedish households.