Riksbank Minutes (June): Although inflation has continued to fall since the Monetary Policy meeting in April, it is still far too high and far from the target of 2%

• The fact that service prices are still increasing rapidly indicates that demand pressures are still high in parts of the economy.


• Several members noted that the risk of inflation becoming entrenched at too high level has increased.

Governor Theeden: 

• As the sales we have implemented so far have worked well, it is reasonable to expand them somewhat, especially when there is still a need for monetary policy tightening.


• Economic developments since the previous meeting have in general been in line with the forecasts we made in April. Internationally, growth has been marginally weaker, the labour market somewhat stronger and inflation approximately as expected.


• However, there is no reason for the Riksbank to react to temporary movements in the exchange rate, but we need to deepen our understanding of the impact of the exchange rate on inflation. And if it turns out that the krona’s depreciation this past year has a greater pass-through to inflation than we have previously assumed, it may, all else equal, lead to a tighter monetary policy than is now projected in our rate path.

First Deputy Governor Bremen:

• The reason I support a rate rise is because underlying inflation is showing signs of becoming entrenched.


• My current assessment is that a rate rise is appropriate at today’s meeting, probably in September and maybe even after that. 

Deputy Governor Jansson:

• This would also indicate that the weak development in the krona exchange rate, which in such a risk scenario can be presumed to be behind the vast majority of the higher wage increases in the manufacturing sector, is a greater cause for concern for inflation than we have so far assumed. I will return to this aspect in my monetary policy discussion.


• Even though I think that our new monetary policy plan currently is well-balanced, I fear that we may need to revise the plan further in a tighter direction going forward. This is because, at present, my assessment is that the inflation outlook has greater upside risks than downside risks. 
  

Deputy Governor Bunge: 

• If inflation is too high over the long term, the negative consequences for Swedish growth and the labour market will definitely be much greater.

Deputy Governor Floden: 

• And I also support the policy-rate forecast indicating that the rate will need to be increased to 4 per cent later this year. But this assessment is associated with considerable uncertainty.


• If the outcomes are approximately in line with our forecast at the same time as there are growing signs of a rapid weakening of the economy, I can envisage a situation in which it will be appropriate to hold the policy rate at 3.75 per cent for the rest of the year. But this probably will also require the krona to appreciate somewhat from its current level

via Riksbank

Analysis details (08:45)

• Overall, the minutes had a hawkish skew. Key remarks include the lines from Breman and Jansson around hiking in September and after & that the plan could be revised to further tightening ahead respectively.


• Within the Minutes, a notable remark emerged via Governor Thedeen who said that "However, there is no reason for the Riksbank to react to temporary movements in the exchange rate..."

10 Jul 2023 - 08:31- Fixed IncomeImportant- Source: Newswires