SWEDEN: Policy Eased, Stable Outlook

Posted December 18, 2012 by rvillareal

• Surprising few, the Riksbank cut its key repo rate by 25 bp to 1.00% after its latest Board meeting.
• Somewhat surprising is the fact that the dissent within the six-strong Board came only from the usual dovish camp: long-standing ‘doves’ Ekholm and Svensson advocated greater easing. [private]
• Notably, despite a weaker outlook for 2013 GDP growth (1.2% vs the 1.8% projection), the core inflation outlook was little changed, especially at the more relevant 2-3 year horizon, thereby ‘justifying’ the decision.
• The strength in the krona in the last year or is also likely to have been an issue, albeit with the currency having softened of late, presumably a reaction to the weaker domestic backdrop.
• DE View: Unless the economy worsens further, which is not the DE central projection, then the Riksbank will remain on hold in the manner it envisages. Indeed, if signs of a recovery do emerge, the current easing speculation may turn into a question of when hikes may actually start.

SWE Dec 18[/private]