Goldman Sachs: Timing The Turn

Goldman Sachs note that "the Riksbank meets this week against a backdrop of rising inflation. Through much of 2021, the Riksbank has been focused on the risk of withdrawing stimulus too early, rather than too late, but this should start to change. At its last meeting in September, the Executive Board argued that more sustained policy stimulus was required to keep inflation durably at target, and projected the repo rate would be flat through the forecast horizon (Q324). Since then, measures of underlying inflation pressures have moved higher, and global price pressures seem likely to last for longer."• "In this context, it is important to keep in mind that inflation expectations in Sweden are particularly sensitive to spot inflation, and have already moved back to 2%. With much of the Riksbank rationale for dovish policy based on low and unanchored inflation expectations, the central bank's guidance could shift swiftly in an extended period of above-target inflation, such as now. The next monetary policy meeting is not until mid-February. Given the uncertain inflationary environment, we think the meeting will therefore feature a more open and balanced tone, on the way to what our economists expect will be a relatively quick shift towards a hike late next year. The recent move higher in EUR/SEK on the back of European growth concerns is therefore an opportunity for investors looking to take advantage of a diverging policy outlook in Europe."