The board of Sweden’s central bank are still worried about weak inflation despite better than expected recent data, according to the minutes of its latest policy meeting, which provided a dovish warning even as the bank removed its easing bias.
The Riksbank has long been noted for its extreme dovishness, even by the recent standards of global central banks, but the Executive Board finally declared that it is unlikely to make further interest rate cuts at its meeting earlier this month.
However, in the minutes of the meeting, released on Tuesday, the executive board stressed that “it is important that the market does not pre-empt future rate increases”, warning that it has not completely ruled out further cuts “in the period ahead” if recent inflation rises don’t last.
Per the minutes:
Several board members emphasised that it was not sufficient for inflation to temporarily touch the 2 per cent mark. After a long period of below-target inflation, it is now particularly important that inflation is sustained close to 2 per cent.
Ensuring this requires continued strong economic activity that gradually makes a greater impression of price growth.
The krona has rallied since central bankers at last month’s ECB forum in Sintra signalled a shift in the ECB’s communication about monetary stimulus, which investors took as a sign the Riksbank would also be more inclined to begin tightening policy. The currency was hovering around four-month highs against the euro before the minutes were released, but several members of the board warned that they will not allow the krona to strengthen too quickly.
Sweden’s small open economy means its inflation rate is particularly vulnerable to changes in the exchange rate, with a stronger krona pushing down the cost of imports and lowering the inflation rate.
The krona weakened after the minutes were released, and at publication time was down 0.3 per cent for the day SKr9.54 per euro.