Riksbank Expands QE; Says More Steps Possible Between Meetings

Sweden’s central bank surprised markets with a bigger-than-expected expansion of its asset purchase program, and said there’s room to deliver more stimulus between scheduled meetings.

“If the world changes, if there’s turbulence for various reasons and if we conclude that we need to do something between meetings, we will do so,” Governor Stefan Ingves said during a virtual press briefing in Stockholm on Thursday.

The Riksbank announced earlier in the day it was expanding its quantitative easing program to 700 billion kronor ($82 billion), which is 200 billion kronor more than its earlier target. The key interest rate was kept at zero, as expected, and will probably stay there in “the coming years,” the bank said.

SWEDEN REACT: Riksbank Move Likely to Be Its Last in Virus Fight

“The coronavirus pandemic is continuing to dominate developments in the global economy,” the bank said. “Growth forecasts have been revised down for the coming six months, for Sweden and abroad. Inflation prospects are also assessed as a little weaker over the coming years.”

The Riksbank not only expanded its QE target, but also said it will step up the pace of asset purchases next quarter. At the press briefing, Ingves said the extra 200 billion kronor in QE won’t be put toward reinvestments, but also assured markets that the Riksbank will continue to reinvest in bonds affected by its program.

The krona fell as much as 0.5% against the euro. Economists at SEB, one of Sweden’s biggest banks, had predicted a 100 billion-krona QE expansion, while others had expected no change in policy.

Policy Mix

Ingves has repeatedly underscored his preference for asset purchases over rate cuts to support the economy. The Riksbank ended half a decade of negative rates almost a year ago, and Ingves has shown a reluctance to delve below zero again, amid financial stability concerns.

But Sweden is now bracing for a dark winter as the pandemic spreads, intensive-care beds fill up and curbs on movement increase. The government has already warned that the next few months will be tougher on the economy than first feared.

As signaled in previous statements, the Riksbank said the repo rate “can be cut if this is assessed to be an effective measure, particularly if confidence in the inflation target were to be threatened.”

Meanwhile, inflation remains well below the Riksbank’s 2% target, coming in at just 0.3% in October.

Riksbank Expands QE; Says More Steps Possible Between Meetings

The Riksbank’s decision to expand its stimulus program comes a fortnight before the European Central Bank is expected to unveil more support measures.

“We are neighbors with an elephant and when the elephant moves it affects us,’ Ingves said. “I can’t comment on what they’ll do and in what way, but basically everything the ECB does to keep the euro zone economy running and to bring up inflation is good for Sweden as well.”

“But what they’ll do and how, we’ll have to see further ahead, because we are not party to that decision-making process,” Ingves said.

In Thursday’s statement, the Riksbank cut its forecast for gross domestic product this year and now sees a contraction of 4%, compared with 3.6% previously. The rebound in 2021 will also be smaller than earlier thought, with growth seen at 2.6%, compared with the 3.7% seen earlier. Inflation will remain below the bank’s 2% target throughout the forecast period, which extends into 2023.

©2020 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.