ECB Keeps Riksbank QE Plan in Limbo as Draghi Sets All Agendas

Updated on
  • Riksbank keeps interest rate path unchanged through 2020
  • Sweden extends mandate for quick krona interventions

Riksbank's Ingves `Mindful' of Debt Office Issuance

Sweden’s central bank opened the door to extending its bond-purchase program as policy makers in Stockholm take their lead from the European Central Bank on the future of monetary policy in the region.

“As the present asset purchase program will run for the remainder of the year, it will provide an opportunity to await further information that could affect a decision in December to possibly extend the purchases,” the Swedish Riksbank said on Thursday.

It’s clear the Riksbank is leaving the “door open for more QE,” Torbjorn Isaksson, chief analyst at Nordea, said in a Tweet. Its current program is set to run until the end of this year.

In the meantime, the bank said its board has extended a mandate to allow “a quick intervention on the foreign exchange market.”

The ECB revealed on Thursday that it will reduce its monthly bond purchases. President Mario Draghi is due to speak at 2:30 p.m. in Frankfurt.

Read more: ECB Slows Asset Purchases as Draghi Sets Sights on Stimulus Exit

The ECB’s announcement “clearly puts speculation of a Riksbank turnaround on hold for now and hence also a krona rebound,” Erica Blomgren, chief strategist at SEB, said in a Tweet.

The Riksbank reiterated its intention to wait until the middle of 2018 before raising interest rates. The benchmark rate was kept at minus 0.5 percent, as predicted by all 26 economists surveyed by Bloomberg.

“The international recovery is continuing, but global inflationary pressures are subdued and the level of interest rates is low,” the bank said. “The normalization of monetary policy abroad is expected to take time.”

Pressure has been growing on policy makers in Sweden to start unwinding some of the record stimulus that’s flooded the economy over the past three years, supporting an output boom and driving inflation back to its 2 percent target after six years of disinflation and even deflation.

But the Riksbank is in a difficult spot, since tapering before the ECB could cause the krona to strengthen. That would lead to lower inflation. Ingves has said the bank doesn’t want to move before the ECB, which is expected to provide clues on its next steps after its rate announcement later on Thursday.

— With assistance by Love Liman, and Niklas Magnusson

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