Riksbank Minutes Show Policy Makers Still Intent on Tightening

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Minutes of the Swedish Riksbank’s latest meeting suggest policy makers weren’t quite as dovish as first thought after the bank last month delayed planned interest-rate increases.

The minutes, released on Tuesday, showed that a clear majority is still intent on tightening further, with two members hesitant toward supporting the lower interest rate path revealed last month. Deputy Governor Cecilia Skingsley pondered whether extending the bond purchased was really necessary.

The bank last month kept its benchmark rate at minus 0.25 percent after hiking in December for the first time in seven years. But bowing to slower inflation and a more cautious stance among central banks abroad, policy makers in Stockholm also pushed back the timing of the next rate increase, potentially into next year.

Following are some of the key comments from the minutes of last month’s rate meeting:

Governor Stefan Ingves:
A slight postponement of the next rise feels natural in light of the somewhat lower inflation forecast, especially this year. But as inflation once again rises towards 2 per cent, the repo rate can be cautiously raised. It can be added that despite these rises, the real repo rate is significantly negative across the entire forecast period. Monetary policy is therefore still expansionary, which our continued bond purchases will also contribute to.
Deputy Governor Kerstin af Jochnick
My assessment is on the whole that the somewhat weaker development in inflation does not in itself require an entirely different monetary policy, but that it is reasonable in this situation to hold the repo rate at −0.25 per cent for a slightly longer period of time.
Deputy Governor Henry Ohlsson
The repo-rate path that was decided on in December 2018 entailed around two rate increases per year during the coming years, with an initial increase during the second half of 2019. I see no crucial reasons for departing from this; there is no argument against the programme we established in December. I would therefore have preferred to hold the repo-rate path unchanged. However, I am not entering a reservation on this point. The reason is that the repo rate path is a forecast, not a direct monetary policy decision
Deputy Governor Cecilia Skingsley
Given that inflation prospects have weakened slightly since then, it seems reasonable both to wait slightly with policy rate rises and to reduce the pace of rate increases to keep inflation close to target. I therefore support the proposal for a new repo-rate path. 
Deputy Governor Martin Floden:
The forecast for the repo rate in the draft Monetary Policy Report indicates that the next rate rise will take place towards the end of 2019 or at the start of 2020. This is not an unreasonable forecast, but I see some likelihood that signs of rising underlying inflation will strengthen and that, in this event, it may be appropriate for the next repo rate rise to come somewhat earlier than the forecast in the draft report indicates. 
Deputy Governor Per Jansson
I share the opinion that improvements in the inflation picture taking place in 2017 and 2018 mean that we can now conduct monetary policy with a little more patience than previously. At the same time, it is important to point out that inflation will not stabilise around the inflation target until towards the end of the forecast period. This shows that the situation is fragile and that the forecast cannot tolerate any greater new downward revisions, without this also leading to further adjustments of monetary policy.

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