Sweden

Swedish central bank seen holding rates at -0.25% through 2020: Reuters poll

STOCKHOLM (Reuters) – Sweden’s central bank will hold its benchmark repo rate unchanged at its meeting this week, with rates likely to remain at the current level of -0.25% through 2020 and beyond, a Reuters poll of analysts showed on Monday.

The Riksbank’s most recent forecast, made in September, is for a hike late this year or early next. But analysts believe a slowing domestic economy and uncertainty over developments abroad will force the Riksbank to postpone its plans.

All 30 analysts in the poll saw no change in rates when the Riksbank announces its policy decision on Oct. 24.

Rate-setters may not be ready to abandon their near term rate-hike plans just yet, however.

“We think they will signal they will raise rates in February-April not December-February,” said Andreas Wallstrom, Head of Forecasting at Swedbank.

Other analysts believe the Riksbank may wait until December before lowering the rate path.

Weaker economic data will force the Riksbank into further delays. The median forecast among 27 analysts was for rates to remain unchanged through 2020.

After years of strong growth, the economy has come off the boil, hurt by a trade war between the United States and China, worries about Brexit and a slowdown in the European Union.

Recent PMI figures showed both the manufacturing and services sectors in Sweden contracting.

The Federal Reserve in the United States and the European Central Bank have already loosened policy.

Rate-setters in Sweden, however, are keen to distance themselves from negative rates – in place for more than five years – and have argued that the domestic slowdown is mild.

After a sharp dip in August, inflation in September was broadly in line with the Riksbank’s forecast – though far from the 2% target – leaving the door open for a near term hike.

The Swedish crown has strengthened since the inflation data and banking group SEB said in its survey of fixed income and foreign exchange markets, 45 percent of respondents now expected a near-term rate hike from the Riksbank. EURSEK=

Should inflation remain close to the Riksbank’s forecasts in the coming months, it will give rate-setters confidence they can move away from negative rates. But a hike would be hard to justify should inflation surprise on the downside.

October and November inflation figures are due before the Riksbank’s Dec. 19 policy announcement.

While all the analysts in the Reuters poll ruled out tighter policy in December – two analysts forecast a cut – five of 27 expected the Riksbank to hike rates in the first quarter of next year.

Six of 27 saw rates at zero by the end of 2020, with four expecting the Riksbank to have cut rates again to -0.50% by the turn of next year.

GRAPHIC: Sweden economy: tmsnrt.rs/2bylYpf

GRAPHIC: Riksbank rate, inflation and the Krona: tmsnrt.rs/1qEN4Rz

Reporting by Simon Johnson, additional reporting by Johan Ahlander, editing by Ed Osmond


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