According to the Riksbank, the policy rate will go up one or two notches more this spring. So expect the interest rate to rise another 0.25% or 0.50% before the summer. Then the Riksbank expects it to be stagnant until 2026. Even the American Fed and the European ECB speak hawkishly about the future, they send the signal that tighter monetary policy is needed to win over inflation. But the market is of a different opinion and is pricing in lower interest rates sooner than the central bank governors dare to talk about.
Can the Riksbank’s forecast be trusted?
No. Riksbank Governor Thedéen himself said at the press conference that uncertainty is very high. In the monetary policy report that accompanied today’s interest rate decision, they admit that they were late to the ball when they did not see in time how the pandemic effects would lead to inflation. Therefore, you should take everything with a couple of pinches of salt.
What happens to the crown?
The weak crown is a mystery. In any case, this is how the Riksbank itself expresses itself in the monetary policy report about the fact that the krona has lost 25 percent against the dollar in two years. The talk of “junk currency” is on again and the old common saying that “in troubled times the market avoids small currencies like the Swedish one” appears as the standard explanation. But it is not enough. The Riksbank leaves us with a big question mark in its analysis and goes on to state that it is of course not good that the krona is weak, as imports become more expensive, which drives inflation.
Is the new Governor of the Riksbank a hawk or a dove?
In any case, no pigeon. He delivered a double smock with a stoneface you don’t want to meet if you have to negotiate salary with the boss (“if you’re not happy, you know where the exit is”, sort of). The message of the day: the fight against inflation is priority one, two and three. And if anyone objects that this risks lowering the economy and leading to unnecessarily high unemployment, he points in response with his whole hand to a PowerPoint that says that inflation makes people poorer than high interest rates.