MNI PREVIEW: Riksbank Won't Go Negative; No Rush To Boost QE

--Riksbank Board Members Clearly Against Negative Rate, At Least Until Recovery

Well Underway

--Current QE Programme Allows Riksbank To Wait Until September Meeting

By David Robinson

     LONDON (MNI) - The Riksbank is set to leave its policy rate unchanged at

zero percent at its meeting on Wednesday, and could wait until September before

announcing an extension of its quantitative easing programme.

     The Riksbank was an early adopter of negative interest rates but, after

raising the policy rate to zero at its December meeting, board members are in no

rush to cut again, arguing that it would be unwise to squeeze savings rates and

reduce incentives for lending in what are still the early stages of its Covid-19

response.

     Instead, at its last meeting at the end of April, the Executive Board

agreed to purchase SEK85 billion of government bonds and SEK18 billion of

mortgage bonds by Sept. 30 2020. Those purchases are within the framework it

unveiled on 16 March, near the peak of Covid-19 financial market dislocation,

when it sanctioned buying up to SEK300 billion of bonds through to December

2020.

     The board could wait until its meeting ending on Sept. 22 before deciding

on any modification or extension of QE but board members have stressed they are

ready to tweak the programme at any time.

     "I'm .. open to the possibility that the various properties in the

facilities may need to be adjusted and extended to improve their effectiveness,"

First Deputy Governor Cecilia Skingsley said at the April meeting.

     --NO INCREASE IN QE PACE

     While analysts on balance expect no change to QE in July there has been

some speculation that the board could announce, or at least signal, an increase

in purchases. But, while the total target amount might be adjusted, there seems

little chance of any increase in the pace of purchases, given relatively small

stocks of outstanding Swedish debt and the Riksbank's already-heavy ownership of

government bonds in particular.

     The Riksbank has yet to reveal whether it will publish a single, central

forecast in the June Monetary Policy Report or stick to what it did in April,

when, in response to pandemic, it published two economic scenarios, for GDP to

fall by either 7% or 10% in 2020, depending on the severity of the Covid-19 hit.

     A return to a collective rate forecast would leave the board facing the

tricky question of whether to place any significant probability on a return to

sub-zero rates as the economic recovery gets underway. The bar is likely to any

such movement is likely to be high, but some board members sounding confident a

move back below zero will be possible once banks' opportunities for profitable

lending pick up.

     "The conditions for repo rate cuts will improve when the rate of spread of

the virus starts to decline and society gradually begins to open up," Deputy

Governor Per Jansson said in the April minutes.

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

[TOPICS: MT$$$$,MX$$$$]