MNI RIKSBANK WATCH: Hawkish Hold, With Room To Wait

The Riksbank held its policy rate at 1.75% on Thursday while removing a commitment for rates to remain at that level for "some time to come" as upside risks to prices grow more pronounced.

"The risk that the war in the Middle East will lead to higher inflation has increased somewhat," Sweden’s central bank said in a press release, adding that "the war is dampening the economic outlook somewhat in the near term."

Still, the Bank noted that inflationary pressures are currently low, even as it judges its policy stance to be slightly accommodative.

"Inflation is currently below the target and the recent inflation outcomes have been clearly lower than the Riksbank's forecast both including and excluding energy prices," it said.

The target CPIF inflation measure fell from 1.6% in March to 0.8% in April, substantially below the Bank's forecast and market expectations. CPIF ex-energy fell 0.01% on the year, well below the Bank's projected 0.67% rise. 

GOOD INITIAL POSITION

In this context, "the current level of the policy rate gives the Riksbank a good initial position to adjust monetary policy if required to safeguard the inflation target," it said.

At the press conference after the decision, Governor Erik Thedeen played down the modifications to the policy statement, saying that this was not necessarily a change in formal guidance.

About 0.7-0.8 percentage points of the CPIF decline were attributable to an April cut in value-added tax on food, and the Bank should look through this, Thedeen said.

He also noted that it is possible for the Bank's next move to be a rate cut, if upside risks do not materialise. (See MNI INTERVIEW: No Hike Delay If Shock Lasts-Riksbank's Thedeen)

The Bank's next round of forecasts will come alongside its June 17 decision.