Tweeted Plane-Crash Image Has Riksbank Defending ‘Clear’ Message

(Bloomberg) -- Sweden’s central bank found itself the target of, at times colorful, criticism from analysts on Thursday after its latest monetary policy statement seemed to leave many of them confused.

One economist at Nordea Bank AB, the biggest Nordic lender, tweeted an image of a plane crash, and suggested the skies would be less safe if the Riksbank were in charge of air-traffic control. At Swedbank AB, chief economist Anna Breman said policy makers have now “changed their minds so many times,” that it’s getting “hard to believe their message.” She characterized Thursday’s statement as “a very unclear signal from the Riksbank, again.”

But Riksbank Governor Stefan Ingves, who presides over a central bank that regularly tops transparency rankings, said the intention had been to spell out more explicitly what policy makers now intend to do.

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The bank had previously signaled it would start raising its main interest rate from a record low of minus 0.5 percent toward the end of this year. On Thursday, it said it won’t cut rates in October. Instead, the bank will raise its main rate by a quarter of a percentage point either in December or February, it said.

“We’ve talked about this for a long time now,” Ingves said in an interview at the Stockholm-based Riksbank after the announcement. “We’re getting closer [to a rate increase] and that’s pretty clear. Our projections in July were pretty similar to our projections this time, and in that sense we wanted to be quite clear compared to what we’ve said in the past.”

The bank’s announcement precipitated a sharp selloff in the krona, which instantly sank more than 0.7 percent against the euro on the news. It recovered slightly, later in the day.

SEB AB chief economist Robert Bergqvist, himself a former employee at the Riksbank, said Thursday’s statement contained a “hawkish twist” because of policy makers’ decision to talk about increases in 25 basis-point increments, rather than 10 or 15 basis points. Bergqvist said the krona’s slump on the news was a “bit surprising.”

Tweeted Plane-Crash Image Has Riksbank Defending ‘Clear’ Message
Robert Bergqvist@BergqvistRobert
Swedish Riksbank takes steps closer to a rate hike. The message is clear: normal rate hike is 25bps (not 10/15bps) and the hike will come in Dec or Feb. A hawkish twist when we look at the inflation forecast. SEK reaction (weaker) a bit surprising.

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But at Nordea, the Riksbank’s comments seemed to confirm a more dovish take. Nordea said it was sticking to its forecast that policy makers won’t raise rates until the end of next year.

At Svenska Handelsbanken AB, analysts opted for a compromise and said the Riksbank’s statement signaled a “slightly later rate hike but stronger conviction,” which they said was “somewhat dovish compared to our expectations,” but “hawkish compared to the market.” Handelsbanken now expects the Riksbank to raise its main rate in February, compared with a previous forecast for December.

The Riksbank is trying to prepare the market for the first rate hike in more than seven years. Thursday’s announcement was also made three days before an election that promises to upend the political establishment in Sweden, with a nationalist, anti-EU party set to cement its kingmaker status. That’s left markets more nervous than usual and fed high levels of krona volatility.

“When it comes to rate increases, our hope is that we are clear,” Ingves said. “And now we’re clearer we’re approaching changing the policy rate, which has not been the case for quite a while.”

The Riksbank’s six-member board was split on the rate decision, with Deputy Governor Martin Floden arguing in favor of a hike next month. Deputy Governor Henry Ohlsson wanted to announce a rate increase on Thursday.

“Each and every time policy changes, then usually a few people are dissenting, so that’s kind of what one would expect,” Ingves said. “This time, the two dissenters have completely different views on what to do and what not to do. But there’s a stable 2-4 majority for the policy the way it’s explained in monetary policy report presently.”

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