Labour market decisive

Our chief analyst, Torbjörn Isaksson, and senior analyst, Andreas Jonsson, have just published a central bank watch regarding the latest repo-rate decision.

As expected, today the Riksbank announced its decision to trim the repo rate by 25 bp to 1.50% and no further cuts are planned currently. In motivating its decision, the bank notes that inflation is low and that Swedish economic growth has slowed more than anticipated. With the surprisingly high repo rate path, the Riksbank is sending somewhat more hawkish signals than expected.

It is becoming a bit tedious, but we continue to believe that a weak performance by the Swedish economy will dominate monetary policy for some time ahead and that the repo rate will bottom at 0.75% in Q3 2012. In turn, this will imply that the repo rate will be lowered further this year. The decisive factor for monetary policy will be the performance of the Swedish economy, especially the labour market. We fear that the central bank is still too optimistic. Having said that, the green shoots evident notably in the US but also in Sweden will be a theme later this year, and that could influence monetary policy expectations longer term.

Read more in the full report below.
Best regards,
Mikael Sarwe

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