Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Central Bank Watch Sweden Soft signals but no changes Torbjörn Isaksson Chief Analyst Research +46 8 614 8859 @TorbjrnIsaksson [email protected] Nordea Research, 2 September 2014 We expect the Riksbank to leave the repo rate unchanged at this week’s monetary policy meeting (announcement on Thursday 4 September). Also the repo rate path from the July Monetary Policy Report should remain intact. No more rate cuts The Riksbank’s July monetary policy meeting may best be described as a monetary policy jolt. The repo rate was cut by 50 bp to 0.25%, the repo rate path was slightly biased towards an even lower repo rate near term, and the timing of the first rate hike was postponed to end-2015. In the minutes of the monetary policy meeting the bank stated that “… rising inflation is now its top priority” and that 0.25% need not constitute the bottom for the repo rate. Surprisingly large rate cut in July The Riksbank’s move in July should be seen in light of the CPIF reading for March showing zero inflation (released two days after the Riksbank’s meeting in April), which no doubt was like an ice bucket shower for the Executive Board. CPIF inflation did edge higher later on, but the two subsequent readings were still below the bank’s forecast. Zero inflation in March a warning signal Although the Riksbank is no doubt under severe pressure and fighting to sustain the credibility of its 2% inflation target, we do not expect a further repo rate cut, neither this week nor later on. The reason is that CPIF-inflation should move higher in H2 2014 and close the year around 1%, in line with the bank’s forecast. No more rate cuts An important factor ahead of this week’s policy meeting is that the two CPIF readings since the July meeting have both been 0.2% point higher than the Riksbank’s forecast. Higher-than-expected CPIF inflation Inflation expectations cause concern Inflation expectations are a key factor in this context. Besides the inflation readings, the most striking factor is the nosediving household inflation expectations in August, to a mere 0.2%. CPIF readings for once above Riksbank’s forecast Contents No more rate cuts ...................... 1 Inflation expectations cause concern ....................................... 1 Mixed picture of the economy .. 2 The krona a key tool ................. 2 nordeamarkets.com/research Small changes and soft signals Don’t rely on household inflation expectations However, household inflation expectations are very volatile and rarely on the mark. Moreover, short-term inflation expectations are normally closely correlated with actual inflation. Should inflation pick up during the autumn in line with our forecast, household inflation expectations will likely rise too. In other words, household expectations may cause some concern at the Riksbank, but they are not significant enough to cause a change in monetary policy. The two Prospera surveys (mapping money market players) released since the July meeting suggest stable inflation expectations. Mixed picture of the economy Weaker-than-expected GDP growth in Q2 Stronger-than-expected employment Housing market heatens up GDP growth in Q2 was 0.2% q/q and below the Riksbank’s forecast of 0.6%. Although GDP growth is not a focal point for the bank, declining economic activity could put the Riksbank in a conundrum. The crisis in Ukraine is a growing uncertainty in this respect, which the Riksbank will recognize but not act on at this point. The Q2 GDP number is a flash estimate and should be taken with a pinch of salt. In addition, certain sectors of the economy continued to show a benign trend, including household consumption and construction. And the steady increase in employment paints a different and probably more reliable picture of developments in the economy than the GDP numbers. Developments in the housing market suggest that parts of the Swedish economy could be heading towards overheating. The Riksbank argues that risks related to household indebtedness should be tackled by other authorities than the Riksbank, and according to Governor Ingves, “it is urgent”. The krona a key tool SEK in line with Riksbank’s forecast Only minor changes compared to July monetary policy report One of the few tools that the Riksbank may make use of to influence inflation near term is the SEK exchange rate. The krona is therefore very important. Over the past months the SEK rate has been largely in line with the Riksbank’s forecast. The relatively strong Swedish economy and the ECB’s monetary policy line put the SEK under constant appreciation pressure, and the Riksbank is trying to counter that. Consequently, the bank will probably continue to send soft monetary policy signals, for instance by maintaining its repo rate path’s short-term bias towards a lower repo rate. All in all, we do not expect any major changes in the monetary policy update due out on Thursday 4 September. The Riksbank will likely continue to emphasise its inflation target and say that it is prepared to act, should inflation not move higher. But we believe that inflation will move higher and therefore do not expect the Riksbank to cut rates further, while a rate hike still seems remote. See charts on the next page. nordeamarkets.com/research Small changes and soft signals CPIF excluding energy on the rise 3.0 SEK in line with Riksbank’s forecast % y/y % y/y 2.5 3.0 2.5 Riksbank 2.0 2.0 CPIF excluding energy 1.5 1.5 1.0 Nordea 0.5 0.0 1.0 0.5 2011 2012 2013 2014 2015 0.0 Source: Nordea Markets and Macrobond Accelerating house prices 112 Index, november 1992=100 111 KIX Riksbank's policy 110 meeting 3 July 109 108 107 106 105 104 103 102 101 100 112 111 110 109 108 107 106 105 Riksbank 104 103 102 101 100 99 99 2012 2013 2014 Source: Nordea Markets and Macrobond Imported inflation should pick up going forward Unemployment better than feared ... … thanks to increased employment Percent Nordea Markets is the name of the Markets departments of Nordea Bank Norge ASA, Nordea Bank AB (publ), Nordea Bank Finland Plc and Nordea Bank Danmark A/S. The information provided herein is intended for background information only and for the sole use of the intended recipient. The views and other information provided herein are the current views of Nordea Markets as of the date of this document and are subject to change without notice. This notice is not an exhaustive description of the described product or the risks related to it, and it should not be relied on as such, nor is it a substitute for the judgement of the recipient. The information provided herein is not intended to constitute and does not constitute investment advice nor is the information intended as an offer or solicitation for the purchase or sale of any financial instrument. The information contained herein has no regard to the specific investment objectives, the financial situation or particular needs of any particular recipient. Relevant and specific professional advice should always be obtained before making any investment or credit decision. It is important to note that past performance is not indicative of future results. Nordea Markets is not and does not purport to be an adviser as to legal, taxation, accounting or regulatory matters in any jurisdiction. This document may not be reproduced, distributed or published for any purpose without the prior written consent from Nordea Markets. nordeamarkets.com/research