Sweden leaves its rate where it is and steepens the path ahead of it
Serguey Asael Shinder1 min readSweden's central bank made no change to borrowing costs this week, holding at 1.75 per cent. What changed is the forecast attached to it: the board now expects to tighten by more than it projected in June, and to start doing so before the year is out.
Its reasoning runs through three observations. Output has come in above expectation - second-quarter GDP beat the forecast - while the cost pressure arriving from abroad has not faded, with the disruption from the Middle East conflict still feeding through. August consumer prices landed where June's projection put them, but the headline understates the picture: temporary fiscal measures are holding the published figure down, and stripping their direct effect leaves something much nearer the 2 per cent target. Forward indicators still show pressure above normal levels, and the board expects the published rate to climb over the coming months.
What it means
A hold with a steeper path is a tighter decision than a cut with a flatter one, because what borrowers pay is set against the expected path rather than today's level. The rate did not move; the thing that prices credit did.
The passage about fiscal measures is the one to keep. A headline figure suppressed by temporary policy will rise on its own when that policy lapses, with nothing in the economy having changed. A central bank that spells this out is telling you which number it is actually steering by - the adjusted one - and warning that the published one is going to catch up to it.