Swedish Riksbank Preview
December 3, 2008
In a sign of these tumultuous times, the Riksbank’s December interest rate meeting was moved forward to today from its originally scheduled time at mid-month. Officials are taking no chance of being left out to dry but sizable rate cuts after meetings of the ECB, Bank of England, and New Zealand, not to mention the Fed next week. Plus, a deteriorating global economy demands acting with dispatch. Here’s what I wrote in commentary after the Swedish repo rate was cut by 50 basis points to 3.75% on October 23rd. That was the second such reduction in October, but Sweden was one of the last advanced country central banks to tighten its policy, raising rates by 25 basis points on September 4th. Today’s decision will be revealed at 8:30 GMT on Thursday, that is earlier than either the announcements from the Bank of England or the ECB.
Facing the same global environment, most other central banks have lately selected the bolder of their easing choices. Sweden had slightly negative growth in the second quarter with an on-year rise of just 0.7% in GDP. Sweden’s manufacturing PMI slumped in November to a very depressed 33.1 from 39.0 in October and 55.1 a year ago. The safe move for the Riksbank would be a third cut of 50 basis points to 3.25%, but that would be just 125 basis points less than the August level. Six weeks ago, officials were planning to ease by 50 basis points sometime during the coming six months (the Riksbank forecasts its own interest rate path, something few other central bankers do). To cut by just 50 basis points at this time would simply be front-loading a pre-announced action. The world economy, Sweden’s circumstances, and financial markets everywhere have soured since October 23 by enough to justify a more forceful gesture from the Riskbank. I expect a cut of at least 75 basis points.
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