MNI PREVIEW: Riksbank Policy Move Unlikely; Focus On Forecasts

With Sweden's economy faring better than initial worst expectations, the Riksbank looks set to leave policy unchanged at its September meeting, focusing on continued liquidity for the real economy, having already front-loaded its bond buying envelope through until summer 2021.

With rates at 0% and the already announced total SEK500 billion of potential bond buys spread across the range of fixed-income assets, the Riksbank has provided reassurance that it is committed to its easing program for many months to come.

This has left policymakers to focus on its main priorities for now – ensuring liquidity flows to the corporate sector and households, whilst underpinning stability across the financial markets.

"The main focus is to get … out liquidity in the economy so that the market functions well," rather than focus on the policy rate which has been left at zero, Deputy Governor Henry Ohlsson said in an MNI interview published last week.

Outlining the reasoning behind the early announcement of the asset purchase plan, Governor Stefan Ingves said it was to make "absolutely clear for market participants what would happen in the course of the summer."

"In the event nothing much at all happened in the summer and given the uncertainty that was a good sign," he added.

With the summer having run smoothly and the Riksbank only starting its corporate bond purchases this month, there is little or no pressure on the board to do more at its September meeting.

FORECASTS

The focus will fall instead on the updated forecasts and analysis in the quarterly Monetary Policy Report (MPR) and whether the board reinforces its line that it could move the policy rate back into negative territory as and when any recovery arrives to try and turbo-charge any pick-up.

For now, however, the majority view on the board has been to focus on asset purchases, with the policy rate a side issue. The July MPR showed the Riksbank board's collective judgement was that the Repo rate would stay at zero through to the end of the three-year forecast period, and a repeat in the September forecast is plausible.

Inflation – as measured by CPIF -- was seen holding below the 2.0% target, only reaching 1.4% in 2021 and 2022, with an acceptance that the measured inflation basket weights could be misleading adding to the fogginess over the data.