Sweden: Riksbank announces expanded QE program
July 1, 2020
At its monetary policy meeting on 30 June, the outcome of which was announced on 1 July, the Riksbank decided to expand its array of monetary policy support measures for the Swedish economy at a time of acute stress.
The Central Bank announced it would double down on its asset purchasing program: It will now purchase SEK 500 billion worth of government, municipal and mortgage bonds up to the end of June 2021, with corporate bonds included in this program from September. This is a bolder program than the one previously announced, which amounted to SEK 300 billion of government, municipal and mortgage bonds up to the end of December this year. In addition, several measures were announced to lower cost of borrowing from the Riksbank for commercial banks themselves. Meanwhile, the repo rate was left unchanged at 0.00%.
Justifying its latest decision, the Riksbank said: “To avoid an unnecessarily prolonged and deep decline in the economy and inflation, monetary policy needs to continue to contribute to the smooth functioning of credit supply in the economy and to keeping interest rates low.” Despite this, the Central Bank added: “The Riksbank’s measures will help inflation rise gradually towards 2 per cent. However, the depth of the crisis means that it will take time before inflation returns to the target.”
In terms of future monetary policy changes, the Riksbank said: “The combination of appropriate measures is constantly being evaluated and will be adjusted to economic developments. The Riksbank is prepared to continue to use the tools at its disposal to provide support to the economy and inflation. The repo rate can also be cut, if this is assessed to be an effective measure.”
Reflecting on the outlook for the repo rate, James Smith and Petr Krpata of ING noted: “it's clear that rates won't be rising for the foreseeable future, and in contrast to Norges Bank, the Riksbank downgraded its interest rate forecast modestly. It now has rates flat throughout the forecast horizon, having previously penciled in a partial rate hike for the end of 2022.”
The next monetary policy meeting will be announced on 22 September.
Author: Edward Gardner, Economist