Inflation expectations and ECB’s QE, among the Riksbank concerns – Danske Bank

FXStreet (Edinburgh) - In light of the recent minutes by the Riksbank, inflation expectations and the prospects of further downside in the euro via the ECB’s QE are the main worries expressed by the Swedish central bank, suggested analysts at Danske Bank.

Key Quotes

“Recent data suggest that (underlying) inflation is moving slowly upwards – but after such a long period of undershooting inflation it would be much worse if it stayed low than if it rose faster than expected (even overshooting the target). Above all, inflation expectations have become a great concern, especially over the longer term and among unions and employers’ organisations”.

“Other risks mentioned were: the global situation, with uncertainties related to Greece and the conflict in Ukraine, and the sharp decline in oil prices (a potentially positive factor for global growth but also a risk to inflation expectations)”.

“Also the ECB: it is clear to us that the board is nervous about the massive policy actions (QE) that the European Central Bank will launch shortly and that this could end up in a stronger krona”.

“In other words, the Riksbank wouldn’t be happy to see a stronger krona at this stage (which in turn makes their forecast of exactly that happening slightly strange)”.

“As far as the SEK10bn in bond purchases are concerned, the message is that it is a test (we find it hard to believe that the RB expects the purchases to have a major effect on inflation) and a signal that the bank is prepared to do (much) more if need be”.