Monday , September 23 2019

Pimco rules out Swedish rate hike

Bloomberg

Sweden is stuck in negative interest rates. That’s the view of fixed-income giant Pacific Investment Management Co, which predicts that Sweden’s central bank will need to leave its benchmark rate at minus 0.25% through 2020.
Sweden’s central bank is struggling to exit more than four years of negative rates. A plan to raise rates to zero again towards end is increasingly being questioned amid growing global economic turmoil. Like much of the rest of Europe, Sweden’s entire yield curve is now below zero.
Sweden’s finance minister has so far brushed off calls to unleash any major fiscal initiatives, or take advantage of fact that Sweden can now borrow at negative rates into 20 years.

While not a base case, Pimco sees some probability that Sweden might enter a recession in the third quarter, given its close links with the weakening German economy. If the situation deteriorates further, the Riksbank’s most likely next move could even be a cut.
Beck-Friis pointed to demographics and weak productivity growth among fundamental factors that are pushing down interest rates globally. While it’s hard to influence that environment, more fiscal policy measures could offer a way out.
Sweden’s Finance Minister Magdalena Andersson has so far brushed off calls to unleash any major fiscal initiatives, or take advantage of the fact that Sweden can now borrow at negative rates into 20 years.
“It would certainly add value to the markets if they indicated that they are willing to expand their fiscal policy in case of a downturn,” Beck-Friis said.
Pimco is not holding any big active positions in the Swedish currency at present since there’s “room for further depreciation in the short term” unless there’s a clear pick up in global trade and in the global manufacturing cycle, he said.

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