Riksbank Minutes Show Growing Uncertainty About Raising Rates
Riksbank Minutes Show Growing Uncertainty About Raising Rates
(Bloomberg) -- Riksbank policy makers are growing increasingly uncertain about an exit from negative interest rates as the world’s major central banks prepare to add more stimulus and domestic growth cools, minutes from its latest policy meeting showed.
The bank earlier this month kept its benchmark rate at minus 0.25% after hiking in December for the first time in seven years. Backed by an inflation rate that is close to target, it kept an outlook for another tightening toward the end of the year.
The board “emphasized that uncertainty in the international economy has increased,” that “participants on the financial markets seem to be expecting significantly worse economic development in the period ahead” and that several major central banks “have also signaled that monetary policy may become more expansionary,” the bank said. “It’s therefore important that monetary policy proceeds cautiously.”
Even so, several members questioned the need for a more expansionary policy in Sweden, including Deputy Governors Martin Floden and Cecilia Skingsley as well as Governor Stefan Ingves. Deputy Governor Henry Ohlsson, the most hawkish, called for an increase potentially as early as September.
Key Comments:
| Governor Stefan Ingves: |
|---|
| “If the markets are right, the major central banks may turn their monetary policy around, into a more expansionary direction. If this is the case, we will need to take a stance at our future monetary policy meetings on what it means for monetary policy in Sweden. It is much too early to draw any decisive conclusions, but one can observe that when, for instance, the ECB turned its monetary policy around, into a more expansionary direction a few years ago, we were in a different situation, with low inflation and low inflation expectations. We are in a better place now, and therefore have a greater degree of freedom.” |
| Deputy Governor Kerstin af Jochnick |
|---|
| There’s a “growing uncertainty about future global growth. In addition, there are clear uncertainty factors surrounding domestic demand, linked to the development of housing prices. Poorer real economic development in Sweden and accompanying weaker development of inflation than we present in the draft Monetary Policy Report would probably lead to monetary policy needing to be adjusted.” |
| Deputy Governor Henry Ohlsson | |
|---|---|
| “I would like to say that the issue of whether a rate rise in my opinion could become relevant as early as at the September or the October meeting is for me an open question.” |
| Deputy Governor Cecilia Skingsley |
|---|
| “Overall, it is reasonable for the Riksbank to exercise caution. Sweden is doing well and monetary policy is doing its job to maintain inflation on target and keep inflation expectations anchored. This is the Riksbank’s best contribution to the national economy.” |
| Deputy Governor Martin Floden: |
|---|
| “The conditions for monetary policy in Sweden nevertheless do not look as bright as they did at the monetary policy meeting in April. I thought then that there were some signs that underlying inflation would strengthen so quickly that it might be appropriate with a somewhat earlier increase in the repo rate than is indicated in the repo-rate path. I now see such a development as less probable.” |
| Deputy Governor Per Jansson |
|---|
| “The problems and risks relating to inflationary pressures in Sweden and developments abroad mean that one might fear that the probability currently embedded in our repo-rate path of a rate increase as early as October or December is too high. This applies in particular if both the ECB and the Federal Reserve choose to increase their monetary policy stimulus soon. In that case, going in the opposite direction will of course be rather risky.” |
--With assistance from Tasneem Hanfi Brögger, Niclas Rolander, Nick Rigillo and Veronica Ek.
To contact the reporter on this story: Jonas Bergman in Oslo at jbergman@bloomberg.net
To contact the editors responsible for this story: Jonas Bergman at jbergman@bloomberg.net, Sveinung Sleire
©2019 Bloomberg L.P.