Riksbank to Prolong Negative Rate Era as World Economy Slows
Riksbank to Prolong Negative Rate Era as World Economy Slows
(Bloomberg) --
Sweden’s central bank is anticipated to ditch its plan to exit negative interest rates this year in response to mounting evidence of a slowdown in the global and domestic economy.
In an announcement on Thursday, the Riksbank will hold its benchmark rate at minus 0.25%, according to all economists surveyed by Bloomberg. Governor Stefan Ingves and his colleagues will likely lower the rate path, dropping plans to tighten toward the turn of the year.
The retreat is coming fast and would prolong almost half a decade of negative rates. A trade war between the world’s biggest economies risks tipping export-dependent Sweden into a recession. The Federal Reserve, the European Central Bank and other policy makers around world are once again unleashing stimulus, raising bets that the Riksbank will next year be forced to undo a rate increase it delivered in late 2018.
“A rate hike is very far off,” said Torbjorn Isaksson, an economist at Nordea. “What we are struggling with is whether they are going to cut rates or not. It’s not our official forecast, but there’s a large probability for it and it’s increasing by the day.”
Economy Contracts
Since its latest policy meeting in July, a report showed the economy contracted in the second quarter amid weakening consumer and business confidence and rising unemployment.
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Inflation, however, has been in line with -- or above -- target, giving policy makers some confidence in their outlook. The krona is also hovering near record lows, providing further room for maneuver.
Policy makers have also been relatively quiet since their July meeting. Riksbank First Deputy Governor Kerstin af Jochnick recently acknowledged that the economic outlook was darkening, but argued that the markets are being more pessimistic than the central bank.
What economists say:
| Swedbank AB sees a minor downward revision to the rate path. “We think they will send a very clear signal in the statement that rate cuts and new bond purchases are possible,” said Anna Breman, the bank’s chief economist. |
| Danske Bank A/S anticipates that the Riksbank will this week adjust its path to indicate an increase in the first or second quarter, before making an about-face and cutting rates again at the beginning of next year. “The Riksbank has reached a turning point,” said Michael Grahn, chief economist at Danske Bank in Stockholm. “There are too many negative factors affecting the outlook. It’s beginning to look like a mine field of elevated risks.” |
| Svenska Handelsbanken AB predicts that the central bank will signal a delay to its next hike to mid-2020. July’s unemployment and inflation data are clearly adding to the uncertainty, said Johan Lof, an economist at Handelsbanken. “But we don’t see the situation being so serious that it requires a ‘whatever it takes’ stance from the Riksbank.” |
| SEB AB expects the Riksbank will lower its rate path so it excludes a probability for a rate hike this year. It will however keep signaling a hike in the first half of 2020. “The step towards a rate cut remains far off,” according to Elisabet Kopelman, an economist at SEB. |
To contact the reporter on this story: Rafaela Lindeberg in Stockholm at rlindeberg@bloomberg.net
To contact the editors responsible for this story: Jonas Bergman at jbergman@bloomberg.net, Nick Rigillo
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