Riksbank Minutes Review: Considerable Uncertainty in Dovish Tone

Summary

• Riksbank board member communication is critical as they tend to be an extension of their views given in minutes. We continue to watch Jansson for signs of impending cuts.
• Overall, biases shifted more dovish. Some pointed to the possibility of cutting in May or June. Others called it a likelihood. All warned of risks to slower disinflation delaying cuts. SEK is a central driver of the view. Inflation expectations remain important, too.
• Governor Eric Thedeen: SEK is likely to prove the main risk. When cuts begin, they will be done with caution.
• First Deputy Governor Breman: Weak SEK will make it difficult to stabilise inflation. Worried that expectations for rate cuts may lead to delayed rate cuts.
• Deputy Governor Aino Bunge: SEK is going to play a big part of her view. Worried that companies will continue to pass on costs, which will delay rate cuts. Needs clear signs on company pricing plans.
• Deputy Governor Per Jansson: Framework remains unchanged – only update is a worry about SEK weakness. Is favouring a May or June cut, but cautiously. Also believes it will prove a slow cutting cycle.
• Deputy Governor Martin Floden: Tendency for higher inflation seems to have been broken. Expects Q1 or Q2 cut but needs underlying inflation at target, SEK to not depreciate, and alternative indicators to develop positively.

Market Implications

• There is a risk of NOK/SEK downside.

Digesting Board Member Comments

Governor Eric Thedéen

Neutral to Dovish (previously: Neutral)

• Supports rates pause and acceleration of QT, alongside economic assessments in Monetary Policy updates.
• Inflation dynamic is now going in the right direction. He no longer has a bias to possibly tightening again.
• Updated policy rate path in March is likely to give signs of when they will cut. I.e., they will suggest whether they start in May/June or have to delay rate cuts.
• Another risk to inflation is the development of SEK.
• Stressed that cuts would be done with caution.

First Deputy Governor Anna Breman

Neutral to Hawkish (previously: Neutral to Hawkish)

• Supports pause in rates and acceleration of QT, alongside economic assessments in Monetary Policy updates.
• Weak SEK would make it difficult to stabilise inflation.
• Risk of inflation entrenched at too high a level has been reduced but if inflation progress stalls, they can refrain from rate cuts or even tighten further.
• Equally, if the policy rate is left unchanged and inflation prospects improve, they can cut earlier or by more than expected. Bias is to keep the policy rate unchanged.
• Worried that expectations of cuts are delaying progress on inflation.

Deputy Governor Aino Bunge

Neutral (previously: Neutral to Hawkish)

• Supports pause in rates and acceleration of QT, alongside economic assessments in Monetary Policy updates.
• Developments have been in line with a favourable outcome (cutting early) but is worried about setbacks.
• SEK going to play a big part.
• Part of CPI has come from companies directly passing on costs. It is unclear whether pricing plans have fully normalised and whether upside inflation risks thus remain.
• Would need very clear signs of continuing favourable developments for inflation and continued action from companies etc to discuss rate cuts, especially in H1.

Deputy Governor Per Jansson

Dovish (previously: Neutral)

• Supports pause in rates and acceleration of QT, alongside economic assessments in Monetary Policy updates.
• Updated view on his framework:
  1. Broadly declining inflation pressures
     1. Since the last meeting, progress has been better than expected.
  2. The Swedish economy was starting to cool.
     1. No change of view here.
  3. SEK has appreciated quite considerably.
     1. Signs of worry here.

• Going to be bad if SEK continues to weaken. Going to watch inflation expectations, too.
• Right now, is favouring a May or June cut, but cautiously. Expects a slow cutting cycle.

Deputy Governor Martin Flodén

Cautiously Dovish (previously: Stubbornly Neutral to Hawkish)

• Supports pause in rates and acceleration of QT, alongside economic assessments in Monetary Policy updates.
• Favourable updates from a monetary policy perspective.
• The tendency of higher-than-expected inflation seems to have been broken.
• One concern is ETS price plans remain a little high. Though alternative signs suggest moderate price rises will persist.
• Risk of further hikes has decreased.
• With underlying inflation 0.3ppt below forecast, a Q2 or Q3 seems increasingly reasonable. To do so:
  • Monthly underlying inflation needs to continue in line with the inflation target.
  • SEK needs to remain stable at best.
  • Other indicators of inflation pressures continue to develop positively.
• Does not think a March cut happens without a serious slowdown in economic activity alongside a major downside surprise in inflation.

Ben Ford is a Researcher at Macro Hive. Benjamin studied BSc Financial Mathematics at Cardiff University and MSc Finance at Cass Business School, his dissertations were on the tails of GARCH volatility models, and foreign exchange investment strategies during crises, respectively.

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