Riksbank: Getting out of negative rates – TDS

Analysts at TD Securities note that the Riksbank has delivered the 25bps rate increase that had been unanimously expected in its latest meet and essentially fully priced by markets, pushing the policy rate out of the negative territory and back up to zero.

1. "The Riksbank's policy rate forecasts were unchanged, and "the repo rate is expected to remain at zero percent in the coming years.
2. The Riksbank's stance is balanced: "Improved prospects would justify a higher interest rate. But if the economy were instead to develop more weakly than forecast, the Executive Board could both cut the repo rate and take other measures to make monetary policy more expansionary.
3. There were two dissents. One was Jansson, as expected, as he would prefer "a repo-rate path that indicates the repo rate will instead be raised some way into the forecast period," once inflation is closer to target. The other one was Breman, the new Executive Board member. Her reservation was a bit different, in that she'd prefer to delay the rate hike until H1 2020, giving inflation a chance to come closer to target, but then would prefer one rate hike per year in 2021-2022.
4. The Riksbank left its 2020 GDP forecast unchanged at 1.2%, and other macro forecasts were little changed. This appears to be a bit optimistic, given the downturn in the recent Swedish data. But the Riksbank needed to deliver a fairly upbeat picture in order to justify today's rate hike.
5. The bar to cutting rates again is going to be very, very high, and we think that the Riksbank will accept a fair amount of economic weakness before even considering going back to negative rates.
6. Rate hike was more about getting out of negative rates than meeting the inflation target."