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ANALYSIS: For good or ill, Sweden's Riksbank seems set on beating inflation

Richard Orange
Richard Orange - [email protected]
ANALYSIS: For good or ill, Sweden's Riksbank seems set on beating inflation
Erik Thedéen, the new governor of Sweden's Riksbank. Photo: Jonas Ekströmer/TT

With his first interest rate decision, the Riksbank's new governor has come out as more hawkish than anyone feared, raising the chances of a punishing recession, The Local's Nordic editor Richard Orange argues.


When Erik Thedéen was chosen as the new chief of Sweden's Riksbank last summer he refused to characterise himself as either a "hawk" or a "dove", jokingly inviting journalists to give him a "fågeltitel", or bird title, after he's served six months in the job.

By announcing plans to start selling off government bonds as well as hike interest rates by the expected 50 basis points in his first interest rate decision on Thursday, he has proven himself more hökaktig, or hawkish, than many would like.

Inflation, he said, was "much too high and continuing to rise", and was "hollowing out households' buying power with laser precision".


The new Riksbank Act, which came in at the same time as he did on New Year's Day, in theory gives Thedéen much more flexibility than his predecessor.

As well as keeping inflation close to its two percent target, the bank is also tasked with "contributing to a balanced development of production and employment".

What seemed very clear on Thursday is that for Thedéen, beating inflation still overwhelmingly comes first.

He promised at least one further rate hike in April, after which he hopes to keep rates high for as long as it takes to bring price rises down.

This was in line with the rate hike timetable outlined in November by his predecessor Stefan Ingves. But Thedéen held the Riksbank's line despite considerable pressure in the weeks running up to the decision from both unions and business, with Sven-Olov Daunfeldt, chief economist of the Confederation of Swedish Industry, warning that a further hike this week risked "throwing Sweden into an extremely deep downturn" with a sharp rise in unemployment.


The chief economist of the Swedish Trade Union Confederation, Laura Hartman, accused Thedéen after the decision of "smashing household finances completely unnecessarily".

Even the banks seemed caught off guard. Handelsbanken's chief strategist Claes Måhlén said the decision to sell bonds was "surprising", adding that Thedéen taking the reins had led to "unexpectedly large changes" at the central bank.


It's not hard to understand why Thedéen ignored the dovish calls of unions and businesses. Sweden was one of the only advanced economies to see inflation continue to rise in December. The Krona is now almost as weak as it was at the nadir of the 2008 global financial crisis. Since November 2021, it has lost a whopping 15 percent against the euro. In the notes to its decision, the Riksbank warned that the weak currency risked worsening inflation.

For the rest of us living in Sweden, though, this first flash of Thedéen's hawkish talons is a worrying sign for the immediate future. 

With its heavily indebted population, high proportion of variable-rate mortgages, and unions willing to accept wage increases far below inflation, Sweden's economy is unusually vulnerable to rate increases.

But this is obviously not a governor who is going to let the short-term prospect of market turmoil, plummeting house prices, company bankruptcies, and unemployment make him lose sight of his core task of getting inflation back to that 2 percent goal.

It's time to batten down the hatches, raise the storm sail, and brace yourself for the downturn.


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