Riksbank to push back the first hike, again - Nomura

Analysts at Nomura believe a hike from the Riksbank in Q3 2018 remains highly unlikely and expect the Riksbank to push back the timing of its next hike at next week’s meeting.

Key Quotes

“Developments since the last meeting warrant a continued cautious stance in our view.”

“We think SEK depreciation will not go unnoticed by the Riksbank – the decline would equate to roughly +0.3pp on near-term inflation forecasts. Additionally, oil prices are around 15% higher which could add around +0.2pp to headline inflation. However, these short-term appreciation pressures overshadow the negative underlying inflation picture.”

“The CPIF ex-energy came in at 1.54% y-o-y in March, 0.25% below the already downgraded Riksbank forecasts of 1.79%. SEK depreciation and higher oil prices will provide only a temporary boost to inflation; however, weak core inflation should raise uncertainty about the underlying inflation generation process.”

“Some encouragement comes from the increase in private sector wages recorded by the National Mediation office that were up 2.4% y-o-y in December from 2.1% in November. However, wage growth remains fragile and the modest increase should not come as a surprise to Riksbank forecasts.”

“Expecting the Q3 2018 hike to be pushed back

We maintain our view that the Riksbank’s repo rate projections are too optimistic. In our view, the majority of the board continues to see risks from overheating (and an inflation overshoot) being much smaller than risks from raising rates too early. We believe there is a high likelihood of a pushing back of the repo rate projection at next week’s meeting from Q3 2018 to Q4 2018.”