‘Sorry, But It’s Crazy’ – Riksbank Decision And The Policymaker Paradox
"Krona has appreciated faster than in [our] July forecast and while it’s reasonable to expect krona to appreciate due to the strong economy, it’s important that it doesn’t strengthen too rapidly," Ingves said at the press conference, before stating the obvious as follows: "There are risks if Riksbank makes policy less expansionary before other, larger central banks."
As noted in our week ahead preview, the Riksbank faced a rather daunting task headed into today's rate decision.
Obviously, they have to exercise caution. They’re effectively beholden to whatever the ECB does. As Governor Stefan Ingves told Bloomberg earlier this year, “when you are next to an elephant, you have to be careful.” Simply put: they need to remain as noncommittal as possible until Draghi tips his hand or risk unwanted krona strength that could derail inflation. Meanwhile, they have to keep an eye on the housing bubble.
"The Swedish krona is the strongest G-10 performer in 2017, and policy makers will not want to add fuel to this by taking a hawkish stance at today's rate announcement," Bloomberg's Richard Jones wrote this morning.
“The Riksbank has been fighting krona strength for several years now and if they were to even hint at tightening, the krona would take off," Nordea's Torbjorn Isaksson noted earlier, underscoring that point.
Well, they kept rates unchanged at minus 0.50% Thursday and they're shamelessly clinging to the inflation excuse. To wit:
Monetary policy needs to remain expansionary for inflation to continue to be close to 2%. The Executi
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