–Two Favour Later Hikes, One Remains Neutral, Minutes Show

BRUSSELS (MNI) – Three of the Riksbank’s six board members are
leaning towards hiking Sweden’s repo rate in July, while two others
favour a later hike and one remains neutral, according to the minutes of
the central bank’s April 19 policy meeting and a separate statement from
Governor Stefan Ingves, both released on Monday.

The opinion of the central bank’s governor, Stefan Ingves, was
released separately because he was unable to attend the meeting due to
air traffic problems in Europe following the volcanic eruption in
Iceland last month.

At its April 19 meeting, the Riksbank left the key policy rate on
hold at 0.25% and said it would “begin raising the repo rate towards
more normal levels with effect from the summer or early autumn.”

The central bank’s rate forecast path implies a rate hike at either
the July meeting or the September meeting, with the market focus now on
when the rise will come.

“When conducting monetary policy there is sometimes a need to bring
repo rate increases forward in order to avoid greater problems further
ahead,” Ingves said in a statement published on the central bank’s web
site on Monday.

“In my view we are now approaching such a situation and this is a
factor that may weigh in favour of a repo rate increase in July,” he
added.

The minutes of the April 19 meeting show that two other board
members, Barbro Wickman-Parak and Lars Nyberg, want to begin raising
rates in July. Two others, Karolina Ekholm and Lars Svensson, want to
wait until later.

For now, the fifth board member, Svante Oeberg, remains neutral.

Wickman-Parak said she, “would like to send a signal that the
normalisation of the repo rate could begin in July,” the minutes showed.

Nyberg agreed with her, saying he “considered July to be a more
natural starting point for the interest rate increases than September.”

They both noted the largely positive news on the Swedish economy
since the last rate meeting.

Karolina Ekholm said she thought “the probability of a first repo
rate increase in September rather than July had increased,” the minutes
showed.

Ekholm said resource utilisation is still low, future inflationary
pressures seem low, and expectations are that several other central
banks — including the US Federal Reserve, the European Central Bank and
the Bank of England — will begin raising their policy rates at a later
date than was assumed at the time of the previous Riksbank meeting.

Deputy Governor Lars Svensson also signalled a desire to begin
raising rates later than July, saying he wanted to hold them at 0.25%
until the end of the fourth quarter of 2010.

According to the minutes, Svensson thought that, “even though the
recovery of the global economy is continuing and the situation on the
financial markets is normalising, there is still a need for an
expansionary monetary policy in Europe and the United States.”

“The recovery is from a very low level and could very well be
fairly slow,” he said, adding that “the risks associated with breaking
off the expansionary monetary policy too early are still much greater
than the risks of continuing to pursue it for too long.”

“Oeberg said that as far as he could see, it is still reasonable to
begin raising the repo rate in the summer or early autumn,” the minutes
showed.

–Brussels: 0032 487 (0) 32 803 665, echarlton@marketnews.com

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