Sveriges Riksbank remains cautious, for the time being | Snap
Against the increasingly hawkish Federal Reserve, the European Central Bank and the Bank of England, Thursday’s Riksbank meeting made more mistakes on the dove side than we had expected.
While the latest ECB rhetoric is increasingly pointing to an increase in deposit rates within the next 12 months, the Riksbank still formally signals that the repo rate will not change until the latter part of 2024. The Bank’s closely monitored interest rate forecasts have only changed subtly in its latest update compared to November .
In practice, we believe that the first interest rate increase will probably come much earlier than that, potentially in the first half of 2023. Wage negotiations, which take place on a three-year cycle, will be concluded next spring and there is a growing chance that these will result in a higher outcome. 2020 round. The labor market is tight at the same time as inflation expectations among employers ‘and employees’ organizations are rising cautiously.
Admittedly, politicians will never acknowledge such a marked change in interest rate hike plans at this stage, but we suspected that for the first time they could suggest a rate hike next year.
The other small surprise is that the Riksbank has chosen not to reduce the size of its balance sheet this year. It has become increasingly clear from recent meetings that the Swedish central bank will begin this quantitative easing well in advance of the first rate hike. It would, of course, differentiate it from its counterparts who are more likely to initiate the process after the rate hike cycle has begun.
But despite some expectations to the contrary, decision-makers are currently sticking to their previous plan to keep the balance sheet size largely unchanged this year. However, we suspect that this guide may well change soon. The statement reveals that three committee members preferred to reduce the volume of planned reinvestments from the next quarter, in order to enable a passive reduction in the size of the balance sheet.
In short, we expect a gradual quantitative easing process to begin sometime this year, followed by a rate hike in the first months of 2023.