SNB and Riksbank policy to diverge

The era of record-low interest rates is nearly over in Sweden, but it is a long way from finished in Switzerland. The Swedish economy is powering ahead, generating inflationary pressure that the Riksbank will soon need to rein in. We expect it to begin raising interest rates in December, then proceed to tighten more quickly than investors expect. This would cause economic growth to slow, with high household debt and overvalued housing presenting downside risks. By contrast, despite strong growth in Switzerland, inflationary pressure looks set to remain very weak. As a result, we think that the Swiss National Bank will leave interest rates unchanged until 2020, which would be much later than others anticipate. Elsewhere, we expect the Norges Bank to stop raising interest rates sooner than its forecasts imply.