Riksbank Begins to Backpedal - ING
Rob Carnell, Chief International Economist at ING, notes that the
Riksbank has announced purchase of an additional SEK45bn of government
bonds over the second half of 2016 - scaling back from the first half
while it announced no change to deposit rate at 0.5%
“Following the last ECB decision, and some further appreciation of the SEK, the Riksbank were under fairly heavy pressure to deliver something today. And they did - an additional SEK 45bn of government bond purchases over the second half of the year.
But the deposit rate was left at 0.5%, and even the QE announcement was fairly marginal. To match the ECB's asset purchase scheme, the Riksbank would have needed to buy an additional SEK 110 in 2H16. But recently, they have been scaling back their purchase relative to the ECB, buying only SEK65bn. This is not surprising, given the relative strength of the Swedish economy, and also some better inflation.
But the latest announcement scales this back further still. About time in our view, as monetary policy has been totally at odds with the domestic economy, and mainly aimed at managing SEK strength. This meeting had only one dissenter, compared with the two last time, suggesting that the path for any further easing will be through additional, though perhaps further scaled back balance sheet expansion, rather than any further cuts to the deposit rate.
But extricating yourself from an inappropriately loose monetary policy stance is not easy to achieve without financial market ramifications, as Ben Bernanke found out in the US in 2013, when he announced the taper. It will take some nifty monetary footwork and forward guidance for Sweden's markets to avoid a tantrum of their own.”