MNI REVIEW: Riksbank Boosts Bond Buys As Virus Concerns Grow

The Riksbank increased its quantitative easing programme by more than expected, boosting asset purchases to SEK700 billion from SEK500 billion and extending the programme by six months to the end of December 2021 as a second Covid wave prompted it to cut growth forecasts.

The announcement, which followed an earlier surprise extension of QE in July, ensures that the central bank will be a purchaser across a wide range of krona markets, with commercial paper, municipal bonds and corporate bonds included alongside Swedish government debt.

"By expanding the envelope and lengthening the time of the programme, the Riksbank is making it clear that comprehensive monetary policy support will be available as long as it is needed," the Executive Board said in a statement.

Its collective rate forecast, in the accompanying Monetary Policy Report, showed the repo rate holding steady at zero percent through to 2023.

CPIF, the target inflation measure, was projected to remain below the 2% goal throughout the forecast horizon. By calendar year, it is expected to trough at 0.4% this year before edging up to 0.9% in 2021, down from the previous 1.2% forecast. It should reach 1.7% in 2023.

GROWTH FORECASTS CUT

The Riksbank cut its growth forecasts, with new Covid-related restrictions biting. Output is expected to see only a partial rebound in 2021, with GDP rising 2.6%, down from the previous estimate of 3.7%. This year, the economy is seen dropping 4.0% drop this year, worse than previously-estimated contraction of 3.6%.

Growth forecasts for the coming six months were revised down as pandemic restrictions increased in many countries, the Monetary Policy Report said, adding that this "illustrates the uncertainty and challenges facing the global economic recovery."

It expects that it "will take until the end of next year ... before GDP is back at the pre-crisis level" but that from 2022 onwards growth will follow roughly the same path that it predicted in its previous MPR in September.

The board left the door ajar to adopting negative interest rates again, saying "the possibility of a repo rate cut cannot be ruled out."

This would depend on the exchange rate, how rapidly the supply side recovers and what impact the central bank thought going negative again would have on the interest rates facing borrowers and savers.