(Bloomberg) -- A half a percentage-point cut from the Riksbank is again a possibility, Nordea Bank Abp chief economist Annika Winsth said in an opinion piece published after prices rose at the lowest pace in almost four years in August.
If the Swedish economy continues to be weak, and inflation remains below the central bank’s 2% target, it could open up for new board member Anna Seim to vote in favor of a larger cut than the traditional quarter-point increments that most economists expect going forward, Winsth said in an opinion piece in local business magazine Affarsvarlden on Thursday.
A majority for a half-point reduction could then take shape if two other rate-setters draw the same conclusion, she wrote, without specifying when such a jumbo move could be on the table. Governor Erik Thedeen could side with the majority, Winsth said, to avoid a debate that could indicate divisions within the board.
“It’s definitely not possible to exclude that the Riksbank will move in larger steps,” Winsth wrote in the piece, which was published shortly after data showed that the CPIF rate of inflation that the Riksbank targets fell to 1.2% last month.
While the Riksbank has emphasized that its preference is for lowering borrowing costs gradually, several board members have said that they view a pause in interest-rate cuts, as well as a half-point reduction, as consistent with a “gradual” approach. That prompted Nordea’s chief economist to criticize the bank for being obscure about its definition of the term.
“In the current situation, it is more important that the Riksbank sends a clear message that it intends to lower the rate at every meeting, toward 2.5%, than getting larger cuts at some occasion and no cut at all on another,” she said. “We can live with having economists confused, but it is unfortunate if households and companies hold back spending more than necessary, when the ambition is to spur demand.”
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