Riksbank's Skingsley Says Rate Path Open for October Increase
(Bloomberg) -- A Swedish interest rate increase as early as October is in line with the policy path laid out by the central bank, Riksbank Deputy Governor Cecilia Skingsley said.
Policy makers last month again pushed back a plan to raise rates for the first time in seven years, saying they didn’t see a tightening until toward the end of the year. But the minutes of that meeting showed disagreements growing among board members with investors and traders particularly surprised by Skingsley suggesting that a rate increase could come already in October.
In an interview on Tuesday in Malmo, Sweden, Skingsley said her personal position was within the forecast range of her fellow central bankers and that they are still on track to tighten monetary policy this year.
“If you look at the path it accommodates October as well as December,” she said. “It’s hard to pinpoint exactly where you are versus your colleagues, and that can move around a little bit, but I think my statement was nothing dramatic, it was in line with how we see the policy path.”
The krona slid 0.3 percent on Tuesday, and was down less than 0.1 percent as of 8:21 a.m. in Stockholm.
Skingsley said it’s only natural that disagreements arise now that the bank “is in a nice position being able to discuss appropriate timing for a liftoff.”
“We’re now past a recovery, we’re actually in an expansion phase,” she said. “Inflation is close to 2 percent, inflation expectations are now more or less anchored again.”
Nevertheless, the bank will still move with caution. Inflation pressures are still elusive in the largest Nordic economy, with the measure excluding energy holding below the 2 percent target at the tail end of a growth boom.
“There are no biases in the forecasts, but given our history, we are at negative rates and if you get it wrong it’s better to be too late rather than too early," she said.
Critics are also assailing the bank amid a plunge in the krona this year and have argued the bank is risking financial stability by keeping rates at rock-bottom levels. Sweden’s economy has been expanding at pace of more than 3 percent, with unemployment dropping to the lowest in a decade.
Led by Governor Stefan Ingves, the Riksbank’s board has invested its credibility in anchoring inflation. Policy makers have since 2015 cut rates deep below zero, snapped up almost half of the nation’s bonds and threatened currency interventions.
The krona has tumbled this year, reaching the lowest level against the euro since the financial crisis as inflation remains on shaky ground and the Swedish housing market rapidly deflates after years of surging prices.
The krona has since recovered almost 3 percent from its recent low against the euro.
The Riksbank is not surprised by the recent strengthening.
“We thought that the full movement was not warranted by the data, and by the repricing -- the markets pushing the liftoff a bit into the future -- but the FX depreciated a bit more than what was warranted by the data,” said Skingsley. “So our best judgment was that these were temporary factors.”
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