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A storm is blowing in the world. What is the Riksbank doing?
According to the interest rate announcement from Thursday: nothing. The Riksbank is keeping a cool head and has decided to leave the key interest rate at 1.75 percent.
Totally expected.
But this decision is also part of a long list of growing threats to the global economy that the Riksbank points out. If we stick with geopolitics, in the last few weeks we have Greenland, Iran and Venezuela. Canadian Prime Minister Mark Carney, who headed several major central banks, describes the new US behavior as a “break” in the world order.
There is a great risk that it will continue to spill over into the economy and trigger small or not so small crises.
Okay, what could that mean?
A clear pattern so far – and one that has a direct impact on the Riksbank – is that the dollar is weakening.
Since the turn of the year, the crown has gained around 20 percent against the dollar. Today a dollar costs around SEK 8.80, compared to SEK 9.20 a few weeks ago. The krone also continues to strengthen against the euro.
This trend, which appears to be partly an effect of the world situation, has had, as the Riksbank notes, a “stronger dampening effect on inflation than the Riksbank had expected”. Swedish inflation is currently just under 2 percent, according to the CPIF measure, and is expected to fall relatively quickly this year. One factor is that imports have become significantly cheaper.
But shouldn’t that lead to further interest rate cuts?
The Riksbank’s main plan is to keep the key interest rate at 1.75 percent for at least a year. The Crown’s rocket speed is definitely one of the factors that could disrupt it and cause it to crash.
However, this matter is at least as uncertain as the general situation in the world and the global economy.
Read more:
Riksbank: Interest rate unchanged, but uncertainty has increased
Carl Johan von Seth: Falling inflation could cause a luxury headache for the Riksbank
