We are approaching a New Year and outlooks for the coming year(s) are released on an assembly line. On this note, we would like to remind all that forecast normally is a trajectory that may be the best possible guess, but a very unlikely scenario to be realized. That statement is certainly validated by looking at the Riksbank policy rate and its rate forecasts. The Riksbank has received unprecedented critisism for its forecast error, but in reality their forecast error is likely not larger than most other forecasters errors (whom to not publicly disclose there errors). It is indeed very complex to forecast the level of policy rates, as its a function of an assessment of an entire economy, In addition, even if you would nail the economic assessment, the result in terms of rate adjustments may still be more of a function of the rate adjustments by other nations and central banks (such as EMU/ECB and US/Fed). That is the game for a small open economy with an own currency.
