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SWE: Riksbank – QE program extended until YE 2016
At odds with our forecast the board
decided to increase and extend the QE
program by SEK 45bn in the second half of
2016. Also, index linked bonds was added
to the program. During the second half of
this year the Riksbank will buy SEK 30bn
nominal bonds while the purchase of SEK
15bn in index linked bonds will begin
already in June, to get the program started
before the summer break.
Furthermore, the Riksbank re-iterated the 3bps
downside bias in the repo rate path and also says it
stands ready to do more if the upturn in inflation is
threatened, saying that rates can be lowered further
(possibly by introducing a 2-tier system in the monetary
operational system), buy more assets or possibly
intervening in the currency market if the currency
strengthens too quickly. The board has made a minor
revision in the press release saying that more monetary
policy expansion now is seen as less likely.
Tapering, but less than expected. Since the
beginning of last year the Riksbank has been buying
bonds at a rate of SEK 67bn per half year which means
that the pace of the purchases is being reduced by
approximately 1/3 (the weekly purchases will be reduced
to approximately SEK 2bn from SEK 3bn). Furthermore,
Cecilia Skingsley made reservations against the
expanded QE program referring to the currently strong
Swedish economy. Somewhat surprisingly, Martin
Flodén and Henry Ohlsson, who made reservations
against the rate cut in February, supported the
expansion today.
Minor moves towards less expansive stance We
had expected the Riksbank to stay on hold today
signalling a larger tolerance to the time needed to return
inflation to target, partly by accepting a stronger krona
and today’s decision is clear a setback for this
projection. Still, we think there are some small signs that
the board is becoming less aggressive in its monetary
easing. One conclusion in the monetary policy report is
e.g. that capacity utilization currently is close to normal.
THURSDAY
21 APRIL 2016
We-iterate our call that the Riksbank is through easing
in this cycle and it will take either weaker growth or a
significantly stronger krona to motivate more easing.
Another rate cut or the introduction of a 2-tier system in
the monetary policy frame work are seen as the most
likely measure if more expansion is needed.
Minor changes to macro forecast. As expected GDP
and inflation were raised slightly this year, and lowered
next year. The downward revision to inflation next year
is, however, smaller than we had predicted and our own
CPIF forecast is 0.5%-points below the Riksbank’s
estimate. This highlights that our prediction that the
Riksbank is through expanding policy to some extent is
contingent on the board re-thinking its current policy
strategy. We, however, continue to be slightly more
optimistic on growth.
Market response will not please Ingves.
Expectations were split ahead of the meeting with
around 50% of analysts predicting that the QE program
would be expanded, but slightly less than 50% of
investors predicting more bond purchases according to
our investor survey. Interest rate spreads to Germany
were largely unchanged after the decision, while the
krona even strengthened slightly vs the Euro. The
unchanged spread to Germany indicates that
expectations for more QE in April may have been more
widespread than indicated by our survey. The
unchanged exchange rate supports our conclusion that
QE has little impact on the exchange rate.
You can also find our research materials at our website: www.mb.seb.se. This report is produced by Skandinaviska Enskilda Banken AB (publ) for institutional
investors only. Information and opinions contained within this document are given in good faith and are based on sources believed to be reliable, we do not represent that they are
accurate or complete. No liability is accepted for any direct or consequential loss resulting from reliance on this document. Changes may be made to opinions or information contained
herein without notice.
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Central Bank Insights
Riksbank forecast on April
Riksbank
forecast in
Apr
CPI 16
1.0
Riksbank
forecast in
Feb
0.7
What SEB
expected in
Apr
0.9
CPI 17
1.9
2.1
1.8
CPI 18
2.9
2.9
2.9
CPIF 16
1.4
1.3
1.4
CPIF 17
2.0
2.1
1.8
CPIF 18
2.2
2.1
2.1
GDP 16
3.7
3.5
3.8
GDP 17
2,7
2.8
2.8
GDP 18
2.3
2.5
2.5
Unemploym. 16
6.8
6.8
6.8
Unemploym. 17
6.6
6.7
6.7
Unemploym. 18
6.7
6.9
6.8
Employment 16
1.6
1.6
1.7
Employment 17
1.1
1.3
1.4
Employment 18
0.7
1.3
1.3
Wages 16
3.1
3.2
3.2
Wages 17
3.5
3.5
3.5
Wages 18
3.5
3.4
3.4
KIX 2016
108.5
109.1
108.7
KIX 2017
106.3
107.3
107.1
KIX 2018
105.7
105.7
105.7
2.0
Int. GDP 16
1.9
2.1
Int. GDP 17
2.3
2.4
2.3
Int. GDP 18
2.4
2.5
2.5
/Olle Holmgren
Please see disclaimers at the end at the report
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Central Bank Insights
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