Important communication and policy action at the start of the new year in Scandinavia. Sweden's Riskbank readied itself to launch foreign exchange interventions to weaken its currency at the touch of a button, while Denmark's Danmarks Nationalbank's raised its main interest rate for the first time in almost two years.
On Monday, the first working day of the new year, Sweden's Riksbank summoned its policymakers for an extraordinary session. The decision was to authorise its Governor to instantly decide on foreign exchange interventions, as a complementary monetary policy measure, to safeguard the rise in inflation.
True to its form as the world's leader in transparency and communication among central banks, the Riksbank spoke in plain language when justifying its decision:
The Riksbank has no target for the exchange rate, but the krona's value in relation to other currencies is an important factor in the inflation forecast. Inflation is rising but has been under the target of 2 per cent for a relatively long period of time. To safeguard the role of the inflation target as benchmark in price-setting and wage formation, it is therefore important that inflation continues to rise.
In announcing its readiness to use currency interventions as a tool to ease monetary policy, the Riksbank is shadowing the Czech National Bank, which adopted an exchange rate floor in 2013 - propped up, if need be, by unlimited currency interventions.
The Riskbank's statement also revealed a dissenting vote cast by one of the Board members and provided a clear reasoning why he did so:
Deputy Governor Martin Flodén entered a reservation against the decision. He thought it appropriate to wait before implementing any further monetary policy stimulation and did not consider currency interventions to be a suitable tool to make monetary policy more expansionary in the current situation.
Publishing the information this way, the Riskbank is retaining an unusually high degree of transparency. Most central banks, including the Czech National Bank, are not this transparent when it comes to revealing how individual policymakers voted on currency interventions (even if they publish a named vote count on interest rate decisions).
In contrast, Danmarks Nationalbank's statement was much less exciting, merely citing the facts and figures:
Effective from 8 January 2016, Danmarks Nationalbank's interest rate on certificates of deposit is increased by 0.10 percentage point. The lending rate, the discount rate and the current-account rate are unchanged. The monetary policy rate spread to the euro area is thereby narrowed from -0.45 to -0.35 percentage point.
Meanwhile, as Bloomberg reports, Norway’s central bank can probably sit out the global currency war that is now at its doorstep.