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Financial News: Riksbank Unlikley To Follow Ultra Loose Policy Amid

Riksbank Unlikley To Follow Ultra Loose Policy Amid Rising Core Inflation

07/14/2017 - 10:02:00 (RTTNews)

(RTTNews) - Sweden's central bank is unlikely to continue its ultra-loose policy in the coming months of this year, as rising underlying inflation points to further krona strength, Stephen Brown, an economist at Capital Economics, said.

Data released earlier this week showed that consumer price inflation held steady at 1.7 percent in May, just above Riksbank's forecasts for a slowdown to 1.6 percent.

However, the CPIF inflation excluding energy, the measure that the Riksbank has recently placed most significance on when discussing trends in underlying inflation, increased from May's 1.6 percent to 1.9 percent in June.

The economist noted that this was the highest reading for underlying inflation for 15 months and leaves it within touching distance of the Riksbank's 2.0 percent target.

Capital Economics estimated that domestic inflation, which excludes imported consumer goods and services prices, slowed to 2.2 percent in June from 2.4 percent in May.

Citing this, Brown pointed that if domestic inflation exceeds the 2.0 percent target for headline inflation and underlying inflation close to it, the Riksbank's exceptionally loose policy and narrow focus on the effect of a stronger krona on inflation are harder to justify.

"Indeed, given our expectation for the Riksbank to turn away from its dovish stance by the end of this year and for it to raise rates in April 2018, before the Bank and other forecasters anticipate, we expect the currency to rise further," the economist predicted.

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