So, the Riksbank.
That’s the folks in Sweden.
You know, the people Paul Krugman called “sadomonetarists” in a truly cartoonish 2014 blog post.
Those would be the same “sadomonetarists” who abandoned their sadomonetaristic tendencies to follow Mario Draghi down the accommodative policy, ZIRP-to-NIRP, QE rabbit hole in order to ensure the krona didn’t soar in the face of ECB easing. And the same Riksbank that got a giant housing bubble as a reward for their efforts to replicate Draghi and appease Krugman.
Well, as noted here earlier this month, the Riksbank removed their easing bias amid the global DM central banker hawkish tilt (basically, Sweden’s monetary policy is tethered to the ECB either way, so if Draghi is easing, they have to ease and if Draghi is getting hawkish, well so is the Riksbank).
On Tuesday we got the minutes from the July 3 meeting and the market was watching closely in light of the hot inflation print that last week pushed the krona sharply higher.
Amusingly, the minutes show that the Riksbank is still hyper-concerned with inflation (not surprising coming from them, but the juxtaposition with last week’s inflation print is funny). Here are the highlights:
- Important Inflation Is Sustained Close to 2%
- Riksbank says in minutes from July 3 meeting that while Swedish economic activity is strong and inflation has become somewhat higher than expected in recent months, “several board members emphasized that it was not sufficient for inflation to temporarily touch the 2% mark.”
- Says that “after a long period of below-target inflation, it is now particularly important that inflation is sustained close to 2%”
- Ensuring that requires continued strong economic activity that gradually makes a greater impression on price growth; several members pointed to importance of krona not appreciating too rapidly in current situation
- All members considered it “a well- balanced policy” to hold repo rate unchanged at minus 0.50%
- A couple of board members “also pointed out that it is important that the market does not pre-empt future rate increases, as this could make the Riksbank’s work on attaining the inflation target more difficult”
So clearly, although the easing bias was removed at the meeting, they are pretty goddamn concerned with making sure the market doesn’t get any ideas about speculating on a dramatically stronger krona. In other words, they want to be really – really – careful to not get too far ahead of Draghi.
And sure enough, the krona took a dive:
For context, here’s a chart that captures last week’s inflation beat:
So if you take that with the RBA minutes and the soft UK inflation print, you’ve got yourself a pretty confusing picture when it comes to what central bankers are thinking and something tells me Draghi won’t help later this week.
Maybe it’s best if everyone takes a deep breath and remembers what Kuroda said in the summer of 2015:
I trust that many of you are familiar with the story of Peter Pan, in which it says, ‘The moment you doubt whether you can fly, you cease forever to be able to do it. Yes, what we need is a positive attitude and conviction.