Riksbank fretted more about external risks in July – Nordea Markets

Martin Enlund, analyst at Nordea Markets, notes that the latest Riksbank minutes revealed a central bank somewhat more worried about international risks than its press release & press conference indicated.

Key Quotes

“Minutes from that meeting revealed a central bank somewhat more worried about international risks (trade war, Brexit, geopolitics, ...) than was evident from its press release and press conference at the time, but this was largely as expected.”

“While the Riksbank generally remains fairly upbeat about inflation, with e.g. überdove Jansson getting more confident due to the rise in CPIF ex. energy), he did say there is "a fairly clear tendency for some of these [external] risks to gradually migrate into the main scenario". This reminds us of ECB Draghi's notion in June that "lingering uncertainty that is by itself a materialization of [downside] risks". Deputy Governor Jansson furthermore noted he had been surprised by the change of direction at the ECB and the Fed. This could suggest the Riksbank may yet to fully internalise what's going on in other key central banks.”

“These minutes are very unlikely to make any waves in Swedish markets. The Riksbank could still flatten its rate path in September as it will then have more clarity on what the ECB and the Fed have been up to. Later during autumn, we think a series of inflation disappointments lies in store for the Riksbank - which should add to pressure on the Riksbank to flatten its repo rate path again and again. Indeed, the Riksbank has shown a tendency to lower the repo rate path at every other meeting since the beginning of 2018.”