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Riksbank’s Floden Signals Unlikely to Lower Rates Next Month

Riksbank Deputy Governor Martin Floden, one of the main advocates for lower interest rates since joining the board in May, said only a major shift in economic data would trigger easing next month.

Something “pretty big” needs to happen for a rate cut in February, Floden told reporters yesterday in Stockholm. “My view is that no dramatic data has emerged” since December, when the bank last cut rates, he said.

The comments are the latest sign that policy makers in the largest Nordic economy see no more need for support measures. Prime Minister Fredrik Reinfeldt said earlier this month Sweden won’t need more stimulus as he pronounced the nation’s economic recovery to be self-sustaining.

Since December, industrial production “looked strong and inflation data has emerged that looked a bit stronger than we thought,” Floden said.

The Riksbank last month cut its main rate for the first time in a year to combat deflation. The repurchase rate was lowered by a quarter of a percentage point to 0.75 percent, marking the first reduction since December 2012. The bank sees its key rate at 0.71 percent in the fourth quarter next year and at 1.88 percent in the same quarter the following year.

Given that Deputy Governor Karolina Ekholm “is likely to agree with Floden, February will be the first time for many years that the board will be unanimous in keeping rates unchanged,”said Lauri Haelikkae, an analyst at SEB AB, in a note.

Ekholm has voted with Floden for lower rates.

Inflation Target

The Riksbank opted to ease policy last month amid criticism it was ignoring its inflation mandate.

Still, pressure on the Riksbank eased this month after a report showed consumer prices rose 0.1 percent in December from a year earlier, when most economists had predicted a decline. The bank targets 2 percent inflation. Adjusting for mortgage costs, inflation was an annual 0.8 percent last month, beating a 0.6 percent estimate in a Bloomberg survey of economists.

“There won’t be any more inflation data” before the next rate decision is announced on Feb. 13, “and it’s inflation data that will be most important going forward for monetary policy,” Floden said.

Still, it would be “worse if we fail on the downside than if inflation becomes too high,” he said.

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