On Wednesday, Sweden’s Riksbank will announce its decision on whether to cut the repo rate further into NIRP-dom and on whether to expand QE.

Who’s excited? 

Ok, so it may not sound as compelling as “US sails guided missile destroyer around man-made Chinese military outposts,” but tomorrow’s decision by Sweden’s central bank actually has serious implications for the global currency wars. 

As we explained on Monday (and on several prior occasions, here and here for instance) the Riksbank is in a tough spot. They’ve driven rates into negative territory and virtually exhausted the market’s capacity to absorb central bank purchases of government bonds and yet they’re still falling behind in the race to the bottom (i.e. incipient krona strength is still jeopardizing the inflation target).

An uber dovish Mario Draghi and the attendant threat of an ECB depo rate cut in December isn’t helping matters. 

And so, the Riksbank’s decision on Wednesday will be watched closely to see if Sweden will once again take a wait and see approach to the ECB or attempt to get out ahead by either cutting the repo rate or expanding the country’s already broken QE. 

This is well worn territory and we’re sure we’ll be revisiting it tomorrow, so we won’t delve further into it here other than to say that if the Riksbank does expand QE, they’d better revise the list of eligible paper lest the lack of market depth for government bonds should once again cause investors to reconsider the trade off between liquidity and the benefits of frontrunning central bank asset purchases on the way to sending yields in the wrong direction. 

So while we await Stefan Ingves’ decision, we thought it worthwhile to draw your attention to a particularly amusing contradiction in policy recommendations. Consider first this from Bloomberg: 

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