Riksbank to take a cautious tone at the December meeting - Nomura

Analysts at Nomura suggest that the Riksbank will likely welcome the slowing housing market as an excuse to take a cautious tone at the December meeting.

Key Quotes

“We continue to expect a QE extension and a pushing back of the Riksbank’s first hike, but we do not think recent developments entail a significant change to the Riksbank’s medium-term outlook.” 

“We think the Swedish economy should be robust enough to sustain the negative impacts of a housing market slowdown. Impacts from the labour market should be relatively contained to the housing sector, which should damp inflation implications. A low unemployment rate, strong economic growth and low debt repayments reduce the likelihood of the recessionary tail-risk scenario. Commentary from the Riksbank’s executive board since the Valueguard data release seems to corroborate this view. 

• Governor Ingves said in an interview with Dagens Industri that recent house price data have not “impacted monetary policy to any greater extent”, but developments will be monitored closely. 
• Deputy Governor Skingsley said that she is not concerned about housing market implications. She also said she believed it is reasonable to halt the QE programme in December (Bloomberg). 
• Deputy Governor Henry Ohlsson said that he is watching housing developments closely, but that “most of fundamental housing market factors are unchanged”. He did, however, highlight the risks of fluctuations in construction growth.” 

“A slowdown in growth is already expected by the Riksbank and consensus. Meanwhile, the market continues to under-price Sweden’s advanced stage in the economic cycle and so we think slowing growth should not be a significant headwind for SEK.”