Erik Thedéen: Monetary policy challenges in war related supply shocks

What the desk is arguing

The desk argues that the Riksbank's monetary policy is increasingly challenged by supply shocks stemming from ongoing conflicts. Thedéen's remarks underscore the complexities of managing inflation while ensuring economic stability, suggesting that the central bank may lean towards a more cautious stance in the near term.

Supporting this view, Thedéen noted that inflation rates have been persistently elevated, necessitating a careful balance in policy adjustments. Recent data indicates that inflation in Sweden remains above the Riksbank's target, which could lead to a more conservative approach in upcoming meetings.

Where it sits in our coverage

Our consensus target for EUR/SEK is 1.075, with a range of 1.04 to 1.12. Notably, jpmorgan has set a target of 1.10 for March 2026, while bofa is more bearish, targeting 1.04 in the same timeframe.

This perspective aligns with the broader consensus, suggesting that while there is a general expectation for a cautious approach, there is still divergence among firms regarding the extent of potential currency movements.

How other firms see it

Firms like jpmorgan and citi are aligned with our cautious outlook, anticipating that the Riksbank will prioritize stability amid ongoing supply shocks. Conversely, bofa holds a contrary view, suggesting that the Riksbank may need to act more aggressively to combat inflation.

The trajectory of EUR/SEK will likely reflect these central bank dynamics, particularly as the Riksbank navigates its policy amidst external pressures. Additionally, the relationship between SEK and other Nordic currencies may also provide insights into regional economic stability.

What the calendar says

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