Divyang Shah, Senior IFR Strategist
Had it not been for stability concerns related to household debt the Riksbank would likely have wanted to cut rates below the current 1.0%. We are likely to see the Riksbank eventually use countercyclical capital buffers to regain maximum flexibility in setting interest rates.
Instead the Riksbank have a rolling probability of a cut (24% probability for Sept cut) and this seems to be the Riksbank’s version of forward guidance.
But the issue of household debt will remain and it seems likely that the Riksbank will walk down the same path as the RBNZ or SNB in taking a look at countercyclical capital buffers as a means of tightening conditions while keeping rates low.
The Riksbank has been doing some work in the background as to the use of countercyclical capital buffers with the release of a Riksbank study in Dec-2012.
The study was conducted by Reimo Juks and Ola Melander from the Riksbank’s Financial Stability Department and titled “Countercyclical Capital Buffers as a Macroprudential Instrument”.
This will likely pave the way for the Riksbank to use countercyclical capital buffers to target household debt and provide greater flexibility on the main policy rate.
