Dove to Hawk: Swedish Riksbank shakes markets with a 100 bps interest rate hike

YEREVAN (CoinChapter.com) – On Sep 20, Sweden dumped its well-established Negative Interest Rate Policy (NIRP), and hit the market with a full-basis point interest rate hike against the estimated 75 bps hike, which some experts see unlikely as well. Notably, only two of 19 forecasters polled by Bloomberg expected such a drastic move.

Riksbank adopts a hawkish policy

In detail, NIRP was a part of the monetary regime’s dovish policy in Riksbank, the Swedish Central Bank. The unconventional monetary policy tool sets nominal target interest rates with a negative value below the theoretical lower bound of zero percent.

However, Riksbank officials hinted that they adopted a hawkish stance to get to the terminal target quicker. According to the central bank’s policy rate path, with the rate ow expected to peak at about 2.53% in Q3, 2023.

According to FX & Global Macro Strategist Viraj Patel, the forward rate path shows that Sweden will be “DONE” with inflation after another big rate hike.

Don’t read too much into the Riksbank’s 100bps hike. They’ve maybe got one more big hike left & then DONE according to their forward rate path. Don’t think there’s much cross-read for other central banks (like Fed)…

explained the analyst in his tweet.

Also read: Gold price seeks major drop amid Fed’s interest rate hike FUD.

Christian Schnittker, the Executive Director at banking giant Goldman Sachs, commented on the matter. He named material slowdown in European activity caused by unfavorable winter weather or new gas supply issues one of the main factors in a slower hiking pace.

We see two-sided risks to this call: faster wage growth or a continued rise in inflation expectations could push the Riksbank to hike more aggressively, possibly another 100bp or more 75bp hikes, given the Executive Board’s concern about a wage-price spiral.

said the official.

What about the Fed?

As CoinChapter reported earlier, the Tuesday FOMC meeting is expected to result in another 75 bps interest rate hike.  The CPI data for August showed an 8.3% year-over-year inflation spike against the red-hot labor market, which means the inflationary pressure is not under control yet.

Ed Yardeni, the chief marketing strategist at Chief Investment Strategist at Yardeni Research, agreed with Riksbank’s policy. He suggested that FOMC could “get it over with” and raise the interest rates by 100 bps.

It seems to me that they are committed to raising the interest rate significantly at this meeting next week. I do think they’re going to come around and conclude that maybe just get it over with, maybe 100 basis points instead of 75 basis points. And then maybe one more hike after that

commented the expert on Friday.

Meanwhile, market participants will have more information once Chair Jerome Powell holds a press conference on Sep 21 at 2:30 pm ET.