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MNI Riksbank Review - April 2021: First glimmers of optimism

We posed three questions ahead of the Riksbank's latest Monetary Policy Report.

  1. Will asset asset purchases be front-loaded (again)? Slightly. The Riksbank will buy SEK75bln of assets in Q3 (implying SEK68bln of purchases in Q4). Analysts had been expecting purchases in the SEK72-80bln range, so this is no huge surprise. We do still note that last year there was a slowdown in QE purchases through July that we may see this year, so the weekly purchase pace in the "normal" months will see more front-loaded purchases than the headline numbers might suggest.
  2. Will the repo rate path be maintained at zero through the forecast horizon? Yes.
  3. Will there be any CPIF forecasts above the 2,00% target? The CPIF forecast ticks above 2.00% for the first time, but only in June 2024 (the last month of projections). It now takes until May 2024 to get to 2.00% (previously it was reached in March 2024 at the end of the previous forecast horizon). Nevertheless, CPIF moving even marginally above target is the first real sign of optimism and a return to normality. This is the first step to having a tick up in the repo rate forecast at the end of the forecast horizon. It is the first glimmer of optimism from the Executive Board.

Outside of this, there was a continued dovish message but with no new commitments on policy and a reiteration that the current policy envelope would be reinvested at least through 2022. The Minutes from yesterday's meeting will be published at 8:30BST on Monday 10 May.

The next Riksbank meeting isn't due until the end of June with the MPR and decision due to be released on 1 July. A lot could potentially change in the intervening months. The hope is that current Covid wave recedes somewhat helped by both better summer weather and increasing availability of vaccinations. We think even if this is the case, the Riksbank will remain cautious at least in the short-term and it may still be too early for the repo rate path to show at uptick at the end of the extended forecast horizon, but we will be watching very closely if the CPIF forecast is raised further at the end of the forecast horizon.

For the full MNI Riksbank Review including summaries of 10 sell-side analyst reviews, please click the link below:

MNI Riksbank Review - Apr 2021.pdf



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