The monetary policy report reveals that the majority of the board is concerned about the long-term outlook for (domestic) inflation. Specifically, there is now a discussion about the fact that wage growth (relating to low central wage deals) does not seem to be responding to strong macro development. The Riksbank says that to the extent that this is the result of structural changes, there is a risk that inflation will stay low for even longer. Today's double-edged decision to both delay the first rate hike by one quarter to Q3 18 (or the first full 25bp to Q4 18) is coupled with an extension of the QE programme by another SEK15bn. The latter is divided equally between purchases in nominals and linkers. The total size of the programme now runs at SEK290bn. Note that the board was evenly split at 3-3, with Governor Stefan Ingves having the last say. That said, we see no change in the Riksbanks monetary policy stance. In addition, it describes two alternative scenarios, one where European and Swedish growth prove to be stronger than expected leading to higher-than-expected (Swedish) inflation, the other scenario is the opposite. The message in this study is that policy response would be asymmetrical and more forceful if inflation stays lower than if inflation comes in higher. The reason is basically that the Riksbank believes that downside risks to inflation expectations are greater than the reverse.
To read the entire report Please click on the pdf File Below