Riksbank Review - Feb 2021: QE front-loaded in line with our expectations

The Riksbank kept its repo rate path unchanged throughout its forecast horizon, confirmed that the QE envelope would be maintained at SEK700bln with purchases to be completed by the end of 2021. However, the following key points arose from the meeting:

• The pace of QE will continue to be front loaded in Q2 (this was expected by the MNI Markets team and by some but not all sell-side analysts). Purchases will comprise of SEK90bln of bonds and SEK10bln of bills. Expectations had been that total purchases in Q2 would sum to around SEK80bln.
• By front-loading the purchases but keeping the QE envelope unchanged, the Riksbank is lowering the pace of purchases throughout H2-21.
• The Riksbank also confirmed for the first time that it intended to reinvest maturing holdings in 2022. This was largely expected but not necessarily through an announcement this early in 2021.
• QE purchases of government bonds will be concentrated in over 10-year maturities. The Riksbank states that "As the Riksbank's holdings of government bonds at the time of this decision largely consist of nominal government bonds with a maturity of under 10 years, the purchases of nominal government bonds shall until further notice be allocated at longer maturities."
• The Riksbank appears to be happy to look through any increases in inflation as temporary, and goes even further by stating that higher inflation would help firm up confidence in the inflation target and could therefore be a desirable outcome.
• The faster pace of QE and the ability to look through any inflation overshoots as positive developments means that on balance this meeting should be viewed as dovish.

MNI Riksbank Review - Feb 2021.pdf