Fed, ECB plans could pose risk to Swedish May rate cut, Riksbank's Jansson says

If Sweden's inflation outlook does not deteriorate, the main threat to a May interest rate cut will come from the postponement of rate-cutting plans by other central banks, Riksbank Deputy Governor Per Jansson said on Thursday. Data on Wednesday showed consumer prices in the United States increased more than expected in March, reducing the chance of an interest rate cut by the Federal Reserve before the end of summer and sending the Swedish crown tumbling.

If Sweden's inflation outlook does not deteriorate, the main threat to a May interest rate cut will come from the postponement of rate-cutting plans by other central banks, Riksbank Deputy Governor Per Jansson said on Thursday.

Data on Wednesday showed consumer prices in the United States increased more than expected in March, reducing the chance of an interest rate cut by the Federal Reserve before the end of summer and sending the Swedish crown tumbling. The reaction in the Swedish crown showed the significance of potential policy shifts in the United States, Jansson said.

"If the crown becomes very weak, that could create problems with Swedish inflation further ahead," he told reporters. He said it was too soon to draw a conclusion for Swedish monetary policy, but that U.S. inflation developments were "not positive."

"It's not just about whether the Fed can decide to act in June or a bit later, it's the entire monetary policy for maybe a year that is under question," he told reporters. Jansson said there was "not a zero chance" that if U.S. inflation remains a problem "discussions could start that they need to hike further in the United States".

At its most recent meeting, the Riksbank kept its key interest rate unchanged at 4.00%, but said there was a strong chance it could start cutting rates in May. Jansson said the Riksbank should act as soon as the conditions were right for a rate cut.

"You have on the other side of the scales the risk of too low inflation if you wait too long," he said. "But that doesn't exclude that ... we decide that its appropriate to wait until June." The Riksbank will closely watch how developments in the U.S. affect the European Central Bank's policy path, which in turn could impact Sweden through the currency.

The ECB left rates on hold as expected on Thursday and signalled it may soon cut interest rates if data supports easier policy. After the ECB decision, money markets priced around a 70% chance of a 25 basis point rate cut in June, compared to a roughly 80% chance earlier on Thursday.

Swedish inflation figures for March are due on Friday. The Riksbank publishes its next monetary policy decision on May 8.

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