Swedish central bank split over policy, Jan inflation surge may tip balance

STOCKHOLM (Reuters) -Swedish rate-setters were split over how fast to start tightening policy at their most recent meeting, the minutes published on Monday showed, but a surge in January inflation could tip the scales in favour of speeding up the exit from pandemic-induced measures.

FILE PHOTO: The sign for Sweden’s central bank is pictured in Stockholm, Sweden, August 12, 2016. REUTERS/Violette Goarant

At the meeting, the Riksbank broadly stuck to its previous plans to keep its balance sheet at the current level through the year and that the repo rate would not rise from 0% until the second half of 2024.

But rate-setters were evenly divided, with three of six wanting to start shrinking the balance sheet this year. Deputy Governor Anna Breman also wanted to bring forward rate hikes.

Governor Stefan Ingves cast the deciding vote in favour of no change.

The minutes showed that three dissenters were all worried about inflation staying higher for longer than in the Riksbank’s forecast, even in Sweden.

“For each inflation outcome published for the countries important to Swedish trade, it becomes increasingly clear that the higher inflation figures are not a transitory phenomenon,” Deputy Governor Henry Ohlsson said.

The more dovish members saw inflation easing in the months ahead. The debate, however, may already be academic after January inflation figures, published after the Feb. 9-10 meeting, showed a surge in underlying prices.

Core inflation hit 2.5%, undermining the argument of the more dovish board members that inflation has mainly been due to energy prices.

The next meeting is in April and agreeing to a shrinking of the balance sheet this year looks like a minimum response, unless January’s inflation number is a one-off.

Even before the last meeting, markets were betting on a rate hike coming long before the Riksbank had forecast, bringing Sweden’s central bank more in line with peers.

With inflation surging, the U.S. Federal Reserve is expected to start hiking rates in March. The Bank of England has already done so and even the European Central Bank has left the door open for a hike this year.

Source: Read Full Article