Riksbank – September 2023 Minutes

Thedéen: Starts off rather balanced, highlighting weaker global (ex-USA) developments since the June meeting and states that weak European growth is expected to weigh on Swedish GDP over the coming quarters. Still sees no more than a mild Swedish recession this year and downplays the risk to commercial real estate. Positive note on that price increases are clearly slowing down, however he also states that inflation is still too high right now, specifically mentioning services prices. In his view, upside risks to inflation still dominates and a further weakening of the Krona is one such risk. Advocates an open and vigilant attitude to inflation developments. He ends on a more hawkish note stating that he clearly sees scope for further hikes to ensure that the policy rate is roughly at the "right" level: "In my opinion, the Riksbank is not there yet". However, doesn't necessarily advocate a hike at the November meeting and that further tightening can come at a later stage.

Breman: Sees signs that monetary policy is starting to work but still favoured a hike (vs no hike) due to: 1) demand remaining high in parts of the Swedish economy, especially service sector. Households will continue to consume (and use savings) as long as they expect first rate cuts to come soon enough. 2) Inflation downturn that is related to electricity prices is not enough and a broad downturn is needed, including less volatile contributors such as services. 3) a depreciation trend in the SEK is problematic (whereas fluctuations are not). For a small open economy the transmission of monetary policy works via market rates AND exchange rates. September hike together with the expanded QT announcement from June will support SEK, which in turn can contribute to falling inflation. Going forward she sees the labour market as an important factor when determining future hikes and she starts to see first signs of a cooling.

Bunge: Overall in line with the majority with no significant deviations from the MPR and also mentions that there is no need for any major changes to the June forecasts. High services inflation is mentioned as a problematic and in combination with the Krona it poses a risk that inflation will not fall quick and far enough, which motivates a slight upward revision of the rate path. Ahead of the November meeting, she is seemingly in line with the rate path saying that there is a possibility for another hike. Beside data releases, key input ahead of the November meeting will be the Riksbank's Business survey, which hopefully can shed more light on companies' pricing behavior and also the effect from the SEK to inflation. 

Flodén: Supports hike and the forecast for the policy rate. Even though the falling pace of inflation he still highlights that it is still not dropping fast enough to reach the inflation target. The recent hike might be enough for this cycle, but this includes that it remains tight for a fairly long time to come. The changed consumption pattern after the pandemic also plays into the inflation figures, due to the change in weights (service price inflation from recreation and foreign travel). He focuses on companies' pricing behaviour which also seems to normalise even though to many still plan to raise their prices towards consumers. Most notable is his bit incoherent discussion regarding the SEK's importance where, even though it remains an issue for monetary policy, he at the same time does not want to exaggerate its contribution to inflation. However, he also says that the SEK's depreciation full pass-through effect takes time and might not yet have fully been seen in consumer prices. Should the SEK remain at this weak level, it might require contractionary monetary policy over a long period of time to continue counteracting the depreciation and that mainly the rapid inflation decline has been due to interest-sensitive Swedish economy.

Jansson: While he skips the second decimals, as usual has a thorough rundown on the latest inflation prints. He cautions against over-interpreting high-frequency measures of inflation since they are more volatile but at the same time finds them valuable. Jansson comes across as rather hawkish, just as he did in June. He says that "Even though I think that our new monetary policy plan currently is well-balanced, I continue, just as in June, to see certain risks that we may need to revise the plan further in a tighter direction going forward." He also addresses the SEK, complying with Danske Bank's view that interest-rate differentials have contributed to SEK weakness, not least during the last year: "Against this background, it seems unwise to underestimate the significance for the krona of further rate increases by the Riksbank in a situation where many market participants believe that both the ECB and the Federal Reserve have reached their policy-rate peaks this time around."

Conclusion: The SEK continues to be in focus (mentioned 43 times vs 44 in June), and especially w.r.t to the impact on inflation. Note here however that the SEK currently is some 3.5% stronger than the KIX forecast for Q4, which alleviate some of the fears going forward. Service inflation remains worrisome and overall, as indicated in the rate path, the door is open for a possible hike in November as well (or even later according to Thedéen). No member voiced any strong objections to the rate path, so there was seemingly a broad consensus. Overall, we find Thedéen and Jansson to be in the more hawkish camp, Bunge and Flodén in the middle and seemingly Breman on the softer side.

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