Riksbank Stays Neutral. QE Extension Unlikely: Meeting Minutes

Riksbank meeting minutes from October released; Minutes show a cautious stand from the central bank as QE purchases likely to end in December 2017.

Summary:

Riksbank releases meeting minutes from the October 26 policy meeting

Rate hike expectations still a far way off

Riksbank could end QE as the current course of bond purchases expires in December

Riksbank does not rule out QE extension at a later stage

The Swedish central bank, the Riksbank released its monetary policy meeting minutes from October. The minutes showed that the central bank expects the soft patch to continue. There was an increasing probability that the central bank will not extend its QE when it meets in December.

By the year end, the Riksbank is expected to have purchased nearly SEK290 billion in government bonds which are equivalent to nearly 8% of the nation’s GDP. Although this is small compared to the ECB or the Fed’s purchases, the central bank owns close to 40% of the eligible bonds in Sweden.

Riksbank keeps a steady hand

The Riksbank’s monetary policy meeting was held on the same day when the ECB cut back its QE purchases but extended its stimulus program for another nine-month period, due to end in September 2018.

The Riksbank’s main play was to remain in a wait and hold mode. Expectations for a rate hike from the Riksbank still remain a long way off.

At the October meeting, the Riksbank left the repo rate at -0.50%. There was also no change made to the central bank’s QE program which is expected to end this December. Although inflation showed signs of easing, the central bank expects this to be transitory. But at the same time, extending QE would also be seen as a premature move from the central bank.

QE: To extend or not to extend

However, the central bank offset this hawkish expectation by stating that the option to extend QE remains on the table as it assesses new information. At the October meeting, the Riksbank also said that it postponed the proposed mandate for quick currency market intervention to July 2018. This came as two members of the board expressed their concerns.