Earlier this month, the Riksbank removed the easing bias from their outlook.
They had too. Do you remember why?
Well, it’s because Sweden’s monetary policy is inextricably tied up with ECB policy. The Riksbank is beholden to Draghi.
This meant that as Draghi plunged ever deeper into the accommodative Twilight Zone, the Riksbank had to follow him down the rabbit hole or risk seeing the krona strengthen to levels that could undercut the push to stoke inflation. In the process, Sweden got a giant housing bubble.
The backstory here is hilarious and involves Paul Krugman. You should read it or maybe skim our retelling in “Albert Edwards, FT’s Katie Martin Take On The Mighty ‘Rikshog’.”
So when they removed the easing bias this month, they tempered it by saying they’re watching for excessive krona strength which meant that this month’s inflation print would be important. If it came in hot, then you could bet EURSEK would plunge as traders anticipated a more hawkish Riksbank.
Sure enough, we got this on Thursday:
- Sweden June Consumer Prices Rose 1.7% Y/y vs Est. Rose 1.6% Y/y
- Statistics Sweden reports CPI +0.1% m/m vs est. unchanged m/m
- Forecast range +1.4% y/y to +1.9% y/y from 12 economists
- CPI index level rises to 321.97 vs 321.74 in May
- CPIF +1.9% y/y vs est. +1.7% y/y, prev +1.9% y/y
- CPIF +0.1% m/m vs est. -0.1% m/m, prev +0.1% m/m
The better-than-expected June inflation data “will be well-received by the Riksbank and strengthen its conviction in the decision to remove the downside bias at its July 3 meeting,” Swedbank said this morning.
And as Bloomberg noted, “even if this latest data print fails to move Riksbank firmly into hiking mode, EUR/SEK [will] eye a move beyond the April low at 9.5503.”
Now cue the chart:
We are indeed back to April:
Long story short, this is yet another small step towards building a comprehensive justification for a global hawkish bias.