Riksbank may keep door open on further QE - TDS

Jacqui Douglas, Chief European Macro Strategist at TDS, suggests that there is one big question at this week’s Riksbank meeting is the future of QE, which runs to the end of June, since the next Riksbank meeting doesn’t take place until 4 July.

Key Quotes

“While we don’t look for the QE programme to be extended any further, it’s possible that the Riksbank wants to keep the door open for now, at least until we’re through the entire French election process (including National Assembly elections in June), given that political risks were cited as a primary downside risk in the Feb statement.”

“The Riksbank doesn’t seem to feel the need to give the same lead time as the ECB does, since while in Oct it announced that it would be “prepared to” extend QE in Dec, it didn’t actually announce the decision until its 20 Dec policy meeting, just about the last effective working day until after the new year, despite the prior QE programme expiring at the end of the month. So we wouldn’t be overly surprised to see the Riksbank announce tomorrow that it plans to “await further information that can affect the decision to extend the purchases... such as outcomes for inflation in the near term and actions of other central banks,” as it did in Oct. Since markets seem to have priced in the end of the QE programme after June, that may come as a bit of a surprise.”

“We do think though that the Riksbank should be able to end QE outright after June, and don’t see any need for them to taper more gradually, especially given the starting point for the currency and the SEK depreciation that we’ve seen recently.”

“ In the case of the ECB and the Fed, who communicated a monthly pace of purchases, tapering seems to need to be a slow, drawn-out process. But the BoE on the other hand last announced £60bn of purchases over 6 months, and just turned the taps off at the end with no problem. Some Riksbank officials felt that since they had communicated via a stock of QE rather than a flow, that they could also get away with a hard stop, and didn’t seem to have much appetite to taper even more gradually after June if the need for further QE was no longer clear.”