Bunge: Riksbank ready for turbulent times, rates flexible
First Deputy Governor Aino Bunge discussed the Riksbank's role in navigating geopolitical uncertainty and its implications for the Swedish economy. Speaking at AMF's spring forum, she emphasized the central bank's commitment to price stability, financial resilience, and payment security.
Inflation near target, but risks remain
First Deputy Governor Aino Bunge highlighted that Sweden's CPIF inflation has fallen close to the Riksbank's target, with forecasts suggesting it will drop below target this year.
The latest inflation outcome was also significantly lower than expected.
However, Ms Bunge cautioned that geopolitical uncertainty, particularly the war in the Middle East, continues to affect the economy through rising oil and gas prices and increased financial market volatility.
The full impact on inflation remains difficult to assess, depending on the conflict's duration and economic responses.
This uncertainty underpinned the Riksbank's decision to keep the policy rate unchanged at its most recent meeting.
She emphasized vigilance against the risk of broader price increases spreading throughout the economy, despite current low underlying inflation.
Policy rates flexible amid shifting scenarios
Ms Bunge emphasized that the rapidly evolving geopolitical situation could lead to significantly different outcomes for both economic activity and inflation, as illustrated by alternative scenarios in the Riksbank's Monetary Policy Report.
She stated that this uncertainty means the central bank might need to adjust the policy rate either higher or lower than currently projected in its main scenario, explicitly ruling out neither option.
Beyond monetary policy, Ms Bunge underscored the Riksbank's crucial role in maintaining financial stability by monitoring Swedish banks to ensure their resilience against global shocks and guaranteeing the continuous functioning of payment systems during crises.
Beyond the main scenario
Bunge's speech underscores the Riksbank's heightened awareness of external risks, moving beyond its baseline forecasts.
The explicit mention of potential rate adjustments in either direction highlights a significant degree of policy flexibility, reflecting deep uncertainty rather than a firm conviction.
This proactive communication aims to manage expectations, signaling a central bank bracing for a highly unpredictable future.