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UPDATE 1-Swedish cbanker surprised by strong ECB hike signals

Published 04/04/2011, 04:59 AM
Updated 04/04/2011, 05:04 AM

* Ekholm says too early to gauge impact on her policy stance

* Says lower Swedish rate path would aid hitting cbank goals

* Says wider rate gap with euro zone would boost crown

(Adds background, detail, analyst quote)

STOCKHOLM, April 4 (Reuters) - A Swedish central banker said the strength of ECB signals pointing to a rise this week in euro zone interest rates had surprised her, sparking talk she might soon switch her policy stance in favour of faster hikes at home.

Riksbank Deputy Governor Karolina Ekholm said on Monday clear indications by the European Central Bank it would hike rates had come as a surprise.

"What it means for my position is too early to say. I will have to make a comprehensive assessment at the next (Swedish monetary policy) meeting," she told reporters after giving a speech.

The ECB is widely expected to hike rates on Thursday to tame rising inflationary pressure.

Sweden's central bank, which meets again later this month, has raised rates at each of its last five meetings as the domestic economy bounced back faster from the global downturn than most of the rest of the developed world.

The consensus from its policymakers is for further steep rises ahead, while Ekholm was one of two central bankers who disagreed with the most recent hikes.

Danske Markets Chief Economist Roger Josefsson said she may shift her stance on rates soon.

"I wouldn't be very surprised if the board's two doves, Ekholm and Lars Svensson, revised up their rate paths already in April in light of the fact the rest of the world more clearly has indicated they will tighten policy," he said.

She and Deputy Governor Svensson have wanted lower rates and a lower rate path.

The next Swedish interest rate announcement is due on April 20, a day after the central bank meets.

CROWN IN FOCUS

In her speech published on the Riksbank's website, Ekholm said the Swedish crown could appreciate more than the central bank's forecasts suggested, while the gap between Swedish interest rates and those of key central banks in other regions was likely to remain wider than anticipated.

"As a stronger crown dampens both inflationary pressures and resource utilisation, I believe that a lower repo rate path than that decided upon would lead to better target fulfilment," she said.

Analysts said that her speech broadly repeated her stance from the last policy meeting, but that there were indications she could move towards the majority on the Riksbank's board.

"She probably won't change her stance at the April meeting but there are elements in her reasoning that could indicate she may change her stance later on," said Torbjorn Isaksson, analyst at Nordea.

"She expresses she is vigilant about inflation expectations, and these have come up and we expect them to rise further. Also, it now seems key rates around the world will rise (more) than the Riksbank forecasts."

Sweden's economy grew 5.5 percent in 2010, the biggest increase since at least 1970.

The robust growth rate as well as rising borrowing costs pushed the crown to a 10-year high against the euro in mid-February but the Swedish currency has eased back since then as expectations for the timing of anticipated rate rises in Europe have been pushed forward.

(Reporting by Simon Johnson, additional reporting by Anna Ringstrom; Editing by John Stonestreet)

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