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RIKSBANK

Riksbank interest rate hikes ‘in doubt’: experts

Swedish experts have expressed scepticism that the Riksbank will raise base interest rates when it meets to discuss monetary policy on September 6th, after a renewed day of stock market turbulence in Stockholm.

Published: 9 August 2011 11:57 CEST

Annika Winsth, chief economist at Nordea, is among those expecting the Riksbank to hold rates at the current level.

“If the mood is the same when they enter the meeting, then we don’t believe they will raise rates. At the moment the market is very negative, more or less free-fall,” Winsth said.

She added that the development is so dramatic that it is impossible to predict how the situation will be in September and what the Riksbank’s decision will be.

Swedbank meanwhile has retained its forecast that the Riksbank will raise interest rates again this year, but recognised that the current market turmoil increases uncertainty over the bank’s plans.

“We have an increase in September in our official forecast, but it is clear that there is a downside risk to it in the current situation,” said Martin Tallroth, interest rate strategist at Swedbank.

Tallroth added that it is “entirely possible” that the Riksbank would leave rates unchanged for the remainder of 2011.

“Absolutely, it is entirely possible. But our official forecast is for an increase for this year,” he said.

Riksbank’s interest rate forecast, published on July 5th, indicating a further two rate hikes of 0.25 percentage points each, to 2.5 percent by the end of the year.

The Stockholm stock exchange oscillated wildly on Tuesday in a second day of market turbulence. After initial falls in the OMXS index of as much as -4.3 percent, the market rebounded to around -0.8 percent by lunchtime.

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ECONOMY

Riksbank deputy ‘open to reconsidering raising rates in April’

Martin Flodén, the deputy governor of Sweden's Riksbank, has questioned whether the central bank needs to bring in further rate rises in April, following bank runs on two niche banks in the US and a crisis of confidence at Credit Suisse.

Published: 16 March 2023 16:20 CET
Riksbank deputy 'open to reconsidering raising rates in April'

Uncertainty in the financial market following bank runs in the US and a crisis at Swiss bank Credit Suisse could have changed the playing field, he told TT in an interview. 

“It affects which level the key interest rates need to be in order to have a contractive effect,” he said, referring to the recent days of financial market turbulence. “We can’t just look at key interest rates by themselves. It’s the key interest rate in combination with all of these developments which determines how tight financial policy will be.”

He said it was not yet obvious what decision should be taken. 

“It’s clear that monetary policy needs to stay tight, but what level of interest is that? We need to assess all of the current developments there.” 

‘Could go in different directions’

In theory, there could be such a serious financial crisis, with such a severe effect on lending and banks’ financing costs, that the central bank would be forced to adopt supportive measures, even lowering the key rate.

Flodén doesn’t think Sweden is in that situation, although he thinks there’s a possibility it could happen.

“It’s not something I can see happening right now, at least, although this could go in different directions.” 

He added that he doesn’t see any reason for any “special concern”, toning down the risk that a crisis for two smaller niche banks in the US and at Credit Suisse could affect the Swedish financial system.

“Of course, it could lead to some stress, but there aren’t actually any particular signs in Sweden, which are worrying me,” he said. 

Flodén is one of six members of the Riksbank executive board, led by Riksbank chief Erik Thedéen, responsible for making a decision on whether interest rates will go up again at the end of April.

The Riksbank has indicated that a rate hike of between 0.25 and 0.5 percent from the current 3 percent rate could be necessary.

Flodén described the most recent inflation statistics for February, where inflation unexpectedly rose to 12 percent, as “not good at all”. So-called KPIF inflation, where the effect of mortgage rates is removed, rose from 9.3 percent to 8.7 percent in January. The Riksbank’s goal is 2 percent.

“It’s clear that inflation is still far too high and that monetary policy needs to be focussed on combatting inflation,” he said, adding that inflation statistics for March will be released before the central bank is due to make a decision on whether to raise rates or not in April.

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