Backstrom - Riksbank must 'wait and see' on rates

SWEDEN - The governor of Sweden's central bank said on 18 May the Riksbank would adopt a "wait and see" policy on rates because inflation risks were hard to assess.
SWEDEN - The governor of Sweden's central bank said on 18 May the Riksbank would adopt a "wait and see" policy on rates because inflation risks were hard to assess.

"Probably the only way to arrive at a clear assessment of the balance of risks is to wait a while and see in which direction developments appear to be moving," Riksbank Governor Urban Backstrom said in the text of a prepared speech.

"If the storm clouds in the international economic skies were to disperse and growth were to improve, there is a risk of tensions arising that could require a tightening of monetary policy," he said.

"On the other hand it cannot be ruled out that the downturn in the U.S. economy will be more pronounced ... In that case the Swedish repo rate is more likely to be lowered somewhat."

Data released on 16 May showed Swedish inflation hit a six-year high of 2.8 percent year-on-year in April, above market forecasts and dampening hopes for near-term interest rate cuts.

Backstrom said in his speech on 18 May that the data should be taken seriously but it was important not to over-emphasise them.

Markets had effectively ruled out a rate cut by the Riksbank at its next policy board meeting on 30 May, and with inflation now close to the three percent upper limit of the Riksbank's monetary policy target, some say a rate rise may be on the cards.

The Riksbank voted unanimously at its last meeting on 26 April to keep its key repo rate on hold at 4.00 percent, but one member warned rates might need to be raised if share prices continued to firm. The repo has been steady since December, when it was raised from 3.75 percent.

The Riksbank targets inflation of on average two percent over an economic cycle, with a tolerance band of plus or minus one percentage point.

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