Monday , August 2 2021

Learn a long time before the interest rate rises again



It's hard to see what could make Riksbank raise the repo value again. Inflation has long been structurally low, which is unlikely to change over the next few years. In addition, the business cycle is already declining. This combination makes it hard to see how inflation will rise, so Riksbank has to raise interest rates.

That's what Nordeas says Chief Analyst Torbjorn Isaacon to the Information Agency Directorate.

"It looks like now it will take a long time before it can become relevant with Riksbank's interest rate hike. In essence, it is the fact that for many years it has proved structurally difficult to raise inflation. "This is enough time to change our expectations about monetary policy and interest rates, and it's already low for a long time," he says.

Nordea's official forecast is that the Riksbank will come up with a new interest rate jump in mid-2020, but this forecast is weak according to Torbjörn Isaksson, who thinks it's almost at hand that it takes a lot more time.

Can we get a Japanese script?

"The longer you wait, the harder you will be to raise the interest rate, the economy adjusts and becomes more sensitive to interests, it's like a piano," he says.

Japan's Central Bank, the Bank of Japan, raised the interest rate in the winter of 2007, and the main interest rate, currently at -0.10%, was not above 0.50% since the end of 1995.

Torbjörn Isaksson says that in the long run, structurally low inflation is against inflation, which is rising in the future, in such a way that Riksbank has to re-raise its repo value.

"It is structurally difficult to raise inflation and that's why it's been a long time, it's nothing new in the last few years, with energy and food inflation averaging 1% in the long run and now 0.9% despite the weak crown," he says .

He says this In principle, energy and food are commodity groups in the CPI that may be affected by shocks from supply and thus raise inflation by reducing supply through, for example, geopolitics or unsuccessful harvests. This is partly done now, with more stringent supplies from Venezuela and Iran, while food prices are rising due to drought this summer.

"Otherwise, inflation is low due to structural reasons, with Swedish glass the delivery is infinite, we can increase demand as much as possible without inflation coming in. I have difficulty seeing some reason that would cause this picture to change radically through the next five years to. For example, if anything else, the structural change in trade is even more intense than before, with increased e-commerce, "says Torbjorn Isaacon.

He adds that Now the economy also seems to be weakening, which is even less likely to accelerate inflation in the near future.

"The use of resources is higher than normal and we have a good economic climate, now the use of resources is decreasing and it is likely to fall to normal levels." Has Riksbank raised? They kept the low interest rate and bought government bonds right through the boom and have missed the opportunity to raise interest rates more now, he says.

The only factor, apart from supply shocks that Torbjorn Isaacon may raise inflation, is if the crown continues to weaken sharply.

"Krona is a bit of a joke, it can weaken more than we think, and although it has not so far influenced inflation inflation, it could be something like a ketchup effect." Many probably meant that the krona to be strengthened and many traders The experience of sleeping hibernation without raising prices, the realization that the krona will be weaker than you can imagine can make the crown have a greater impact on inflation than before, " he says.

He is for himself partly critical of Riksbank's actions in recent years, but one, in his opinion, is too one-sided focusing on inflation to 2%.

"It was a mistake to drop to a minus and QE was also a mistake, too much focus on consumer price inflation." The goal of inflation has now become the common goal when it is only a means of achieving strong economic changes, "says he.

According to Torbjörn Isaksson, Riksbank's excessive unilateral focus on inflation to 2% creates imbalances in other areas.

"There are other economic variables that are at least as important as they are now allowed to hesitate to stabilize inflation by 2%. It is about using crowns and resources, but also about the financial stability and the prices of housing, "he says.

It is also in turn, worries that Riksbank underestimates the risks of weak Krona. The urgent message of Governor Stephen Engve is that the Riksbank does not have a crown target and that in a country with a volatile exchange rate it can assume that the currency can be weakened.

"It can not be ruled out that the krona will weaken much more than anyone believes, which could raise inflation and cause Riksbank to raise interest rates in a situation where the economy is sensitive to interest rates. I think the Riksbank at a certain level of krona, I do not know who will react to the course itself and would like to stabilize it. "There is a risk that Riksbank then understands the difficulties of stabilizing the crown once it comes to such a weak trend. an uncertain situation that has arisen , "he says. ,

Torbjörn Isaksson believes that less expansive monetary policy would be preferred later. Riksbank could be more comfortable with low inflation, which obviously does not depend on any problems in the Swedish economy.

"We could have a higher interest rate and stronger kron than we have today. A strong crown is positive and good. The problem with the weak crown is not only to make it more expensive for tourists abroad but makes us poorer than the outside world. – he says.

He says this The advantage, often referred to as the presence of a weak currency, is that it benefits from exports and he is skeptical of it.

"Why is exports benefiting from the fact that wages in Sweden are lower than in the outside world, not what we should strive for, not what we have to compete with, but excellence in research and development" , says Torbjorn Isaacon.


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