Riksbank Minutes Flag Likely Further Hike as Inflation Risk Lingers

What the minutes said

Published Tuesday, the minutes point to the risk that price pressures could firm in the months ahead. Policymakers reiterated that the September path remains intact and signaled "a further hike in the coming year."

The central bank took its policy rate to 2% last week, part of a broader global tightening as Sweden's economy improves while energy prices stay high. It delivered no new economic projections or updated rate path at the November meeting.

Voices from the bank

Governor Erik Thedéen said his September justification for lifting rates - namely that the economy has strengthened and inflation risks remain high - continues to hold. He added, "I expect that we will raise the policy rate in line with our September forecast over the coming six months or so."

Deputy Governor Anna Seim called the upswing robust, noting, "The economic upturn appears to be robust and is characterized by a strong industrial sector and optimistic companies." She said the jobs market is likely to firm and that household consumption has been running above typical levels this year.

Deputy Governor Per Jansson warned that rising demand combined with supply side bottlenecks and a weakening krona could cause inflation to "rise sharply."

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All board members agreed the September path still stands, according to Swedbank AB analysts Jesper Hansson and Glenn Nielsen, who said there were "no surprises."

What analysts are watching

Nordea Bank Abp's Torbjörn Isaksson said the minutes indicate the Riksbank is moving toward more tightening. He said that a modest appreciation of the krona and October inflation coming in below expectations argue for holding rates steady in December, but "there is much to suggest that the Riksbank will raise rates again in February."

Swedbank maintains a forecast for one more move in February to 2.25%.

The backdrop and why it matters

Sweden's outlook has improved as exports have increased and tax cuts have helped household spending. Meanwhile, continuing strains in the Middle East have constrained Europe's energy supply and driven prices up.

Inflation by the Riksbank's CPIF measure has been subdued recently and undershot forecasts again in October. Even so, the bank forecasts CPIF will reach the 2% target before this year is over. A related "Swedish Growth Seen Easing" chart is based on calendar adjusted data and draws on reports from Swedbank and SEB published Tuesday and the Riksbank's Sept. 24 materials.

The bottom line: policymakers see enough upside risk on prices to keep the door open to another hike. For rate sensitive parts of your portfolio, the path still points higher, even if December holds.

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