Swedish central bank expected to leave key rate at -0.25pc, poll shows

STOCKHOLM: Sweden's central bank is expected to keep its benchmark interest rate unchanged this week, but uncertainty about the global economy could yet scupper plans to tighten policy later this year, a poll of analysts showed.

All 15 analysts in the poll said the Riksbank would leave the repo rate unchanged at -0.25pc when it announces its decision on July 3.

Several said the Riksbank might also tweak its rate path forecast and push back the timing of a rate increase, either to exclude an October tightening or even indicating rates won't go up until next year.

"We find it most likely that the Riksbank will present a flatter rate path, pushing the first rate hike into next year, and hence buy itself some time to decide upon further actions,"  said Kyrre Aamdal, economist at DNB Markets.

The central bank said in April it planned to raise the repo rate towards the end of the year or at the beginning of next year, already a postponement from earlier plans.

Despite years of strong growth, Sweden has raised rates just  once since 2011, by a quarter of a percentage point, and the Riksbank remains cautious even though the economy is only expected to slow slightly this year.

Inflation - at the 2pc target for the last couple of years - is expected to drift lower and unemployment looks to have bottomed out. The central bank is mainly worried about increasing risks from developments in the global economy.

A trade dispute between the United States and China could weigh on global growth, and Brexit looms over an already weak European outlook.

The European Central Bank and the US Federal Reserve are already pointing to looser policy ahead and the Riksbank risks a stronger crown and slower inflation unless if follows suit.

While the Riksbank is not under pressure to act quickly - the current rate path only shows a small chance of a rate hike in October - some analysts believe the bleaker outlook for the global economy means the Riksbank will be forced to postpone its rate-increase plans again, even if it waits to announce the change until after the summer.

Only two of 13 analysts in the poll expected the Riksbank to raise rates this year. Six of 14 saw a hike by the end of 2020. Eight foresaw rates remaining unchanged until then.

"The theme for the market right now is whether the Riksbank is going to ease policy. Rate hikes are a long way off," said Torbjorn Isaksson, economist at Nordea.