January 9, 2019 / 9:00 AM / in a month

Swedish central bank eyes global uncertainty as it mulls further rate hikes

STOCKHOLM (Reuters) - Uncertainties about the global economy mean Sweden’s central bank needs to move cautiously in tightening policy after its first hike in more than seven years, minutes of its December meeting published on Wednesday showed.

Last month, the Riksbank set aside its concerns about sluggish underlying inflation, arguing the strong economy meant it could begin normalizing rates after years of ultra-loose monetary policy.

It expects to tighten again in the second half of this year, but worries about how a global slowdown would affect Sweden could yet upset the central bank’s plans.

“If inflation develops more weakly than is now expected, it may affect monetary policy,” Riksbank Governor Stefan Ingves said in the minutes.

While the Riksbank has promised to proceed cautiously, many analysts believe the 25 basis point hike to -0.25 percent comes too late in the business cycle - the U.S. Federal Reserve has already hiked nine times over the past several years.

Now a global slowdown could put the brakes on Sweden’s economy before rates return to more normal levels, leaving the Riksbank short of ammunition to deal with a future crisis.

“It looks like the risks are more on the downside,” Nordea chief analysts Torbjorn Isaksson said.

The Riksbank hiked its benchmark repo rate by 25 basis points to -0.25 percent at its most recent meeting.

Reporting by Stockholm; editing by Niklas Pollard

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