STOCKHOLM (Reuters) – Sweden’s central bank will hold its benchmark rate unchanged at -0.25 percent at this week’s policy meeting and may be forced to delay plans to tighten policy later in 2019, a Reuters poll of analysts published on Tuesday showed.
After a couple of years with inflation around the 2 percent target, the Riksbank finally began normalising policy in December last year adding it expected further gradual tightening ahead.
But recent data has disappointed. At 1.8 percent in March, the headline inflation lagged the Riksbank’s forecast by 0.5 percentage points, the third month in a row that the central bank had been too optimistic in its expectations.
Inflation is expected to ease further during the summer.
“We don’t think they will hike before April next year,” said Olle Holmgren, economist at SEB. “Inflation continues to be weak, international central banks have postponed their rate hikes and it’s unclear in which direction the economy is heading.”
On the other hand, the Riksbank is keen to reinforce the credibility of its forecasts having repeatedly postponed planned hikes over the last few years.
Rate-setters have also said that after years of stable inflation they have more tolerance now for forecast deviations.
All 19 analysts in the poll saw no change in the benchmark repo rate when the central bank announces its monetary policy decision at 0730 GMT on Thursday.
Five of 15 analysts expected the central bank to stick to its forecast and bring an end to negative rates in the third quarter. Seven of 14 saw higher rates by year end.
At its most recent meeting in February, the central bank said it planned to hike rates in the second half of the year. At that time, a majority of analysts had expected policy tightening to come in the third quarter.
The central bank is also set to announce its plans for its 350 billion Swedish crown (£29 billion) bond portfolio, acquired as part of its attempts to ease borrowing costs over the last few years.
The central bank has been reinvesting coupon payments and bonds as they mature.
GRAPHIC: Sweden inflation: http://tmsnrt.rs/2eahojm
GRAPHIC: Riksbank rate, inflation and the krona: http://tmsnrt.rs/1qEN4Rz
(Reporting by Simon Johnson; Editing by Alison Williams)