NEWS / Foreign Exchange

Riksbank's Öberg explains his view

• ?• He reiteratesthat the repo rate should be raised faster than in the base scenario
  

• We interpret him as leaning towardsthe ???high wage scenario???. However, the market is currently pricingin more than that. 
  

Deputy Governor ?–bergrepeated today that he would have preferred a rate rise by 25 bp on March 29and that the repo rate forecast should have been revised up. However, he givesno obvious clues as to how sharp this upward adjustment would be. One can notethat he does no appear to propose a markedly steeper rate path. One should beaware that the market is currently pricing in a repo rate path that goes beyondthat in Riksbank??™sso called ???highwage scenario???(se chart).

 ?–berg refers to the same 3 factors as inthe Minutes: 1) that economic developments globally as well as in Sweden are very strong, 2) that Swedish databetween between February and March meetings were stronger than expected and 3)that wage agreements appear to end up higher than expected. Based on theseobservations ?–berg draws the conclusion that an adjustment to the repo forecastis needed.

 At the same time ?–berg states that realeconomic development has not had the same impact on inflation over the past10-15 years as previously. He argues that there may have been structural changesthat will continue to contain inflationary pressures ahead.

?–berg nonetheless concludes that upside risks are greater than downside risksand this fact may in time pull up inflation.

 Our guess is that ?–berg probably istalking about the ???highwage scenario???,i.e. the scenario that ends with a repo rate at 4.25% and it is uncertain whetherhe advocates more rate hikes than that. It is in that respect we note that themarket is already pricing in more than that.