MNI STATE OF PLAY: Riksbank Seen Accelerating Tightening

The Riksbank is widely expected to up the pace of tightening at its September meeting with debate set to centre on a 75-basis-point hike, following the 50-basis-point increase at its previous meeting,

Governor Stefan Ingves admits the RIksbank has had a bad year for predicting inflation, which has repeatedly exceeded expectations, and the central bank's previous rate projection showing the policy rate, currently at 0.75%, rising to close to 2.0% by early 2023 looks obsolete. Deputy Governor Henry Ohlsson said at the June meeting he would have supported a 75-basis-point hike if his colleagues had backed one.

While policymakers remain cautious with regards to a deteriorating economic outlook and lags before monetary policy takes effect, the latest survey from Prospera showed evidence of inflation expectations rising for those engaged in wage bargaining, highlighting the risk of higher prices becoming entrenched through higher multi-year pay deals.,

With clear consensus on the board is that further rate hikes are needed, and needed swiftly, and with only one more decision-making meeting after September's this year, the Swedish central bank needs to push back hard against rising inflation and the risk of second-round effects in the labour market.

RAPID INCREASE IN PACE

In June, another Executive Board member, Martin Floden, said that rates would probably need to increase rapidly, while Anna Breman in a speech at the end of August said that it was "clear that further increases in the policy rate are required" and that the central bank needed to act now as "we cannot allow inflation to become entrenched at high levels."

Ingves has acknowledged that the Riksbank's forecasts will once again be shredded. In August target CPIF inflation hit 9.0%, with the Riksbank having previously expected an 8% peak.

While there has been some market speculation of a full percentage point hike next week, there has been little from policymakers in publicly to suggest they would back this.

A new set of forecasts will be published alongside the policy decision Tuesday. One possibility is that the Riksbank will open the door to successive 75bps hikes and raise the anticipated rate peak.