Riksbank: QE See, QE Do? – TDS

James Rossiter, Senior Global Strategist at TD Securities, suggests that while a rate cut is unlikely, we think the Riksbank will announce at its policy meeting on Thursday a further 45bn SEK in QE purchases to be conducted until December 2016.

Key Quotes

“If the ECB remains on hold for the rest of the year, this could be the last easing move by the Riksbank.

The Riksbank meets for the second time this year on Thursday 21 April. The backdrop for this meeting is a familiar one: easy monetary policy is supporting a relatively healthy domestic economy, even if the global macro backdrop has deteriorated somewhat since the start of the year.

The ECB has Eased Again, So Will the Riksbank

The ECB signalled that its March rate cut might be its last, and for this, the Riksbank will be thankful (the Board is split 3-3 on rate cuts anyways, now). Rapid exchange rate appreciation remains one of the chief concerns of the Riksbank, and as a result it has frequently mimicked the ECB’s policy moves in order to limit FX moves. At -0.50%, the repo rate is now very stimulative, and is exasperating household financial imbalances. An ECB at the lower bound means a Riksbank at the lower bound, which is good from a financial stability standpoint.

However, the Riksbank is likely worried that if it were to signal that it was finished easing completely, pressures would immediately build on SEK. With its current QE program due to end in June, we therefore expect the Riksbank to announce a QE extension to end-year, with additional purchases of SEK45bn, partly mimicking the expansion to the ECB’s asset purchase program in March. A hint towards expanded QE comes from the February policy statement itself, where the Board stated that “Swedish monetary policy must relate to [other central banks’ easing policies]”. Otherwise, turning off the QE machinery completely right now could see SEK appreciate more rapidly than they’d prefer.”