Riksbank expands QE; says more steps possible between meetings

[STOCKHOLM] Sweden's central bank surprised markets with a bigger-than-expected expansion of its asset purchase programme, and said there's room to deliver more stimulus between scheduled meetings.

"If the world changes, if there's turbulence for various reasons and if we conclude that we need to do something between meetings, we will do so," Governor Stefan Ingves said during a virtual press briefing in Stockholm on Thursday.

The Riksbank announced earlier in the day it was expanding its quantitative easing programme to 700 billion kronor (S$109.7 billion), which is 200 billion kronor more than its earlier target. The repo rate was kept at zero, as expected, and will probably stay there in "the coming years," the bank said.

"The coronavirus pandemic is continuing to dominate developments in the global economy," the bank said. "Growth forecasts have been revised down for the coming six months, for Sweden and abroad. Inflation prospects are also assessed as a little weaker over the coming years." The Riksbank not only expanded its QE target, but also said it will step up the pace of asset purchases next quarter. At the press briefing, Mr Ingves said the extra 200 billion kronor in QE won't be put toward reinvestments, but also assured markets that the Riksbank will continue to reinvest in bonds affected by its programme.

The krona fell as much as 0.5 per cent against the euro. Economists at SEB, one of Sweden's biggest banks, had predicted a 100 billion-krona QE expansion, while others had expected no change in policy.

Mr Ingves has repeatedly underscored his preference for asset purchases over rate cuts to support the economy. The Riksbank ended half a decade of negative rates almost a year ago, and Mr Ingves has shown a reluctance to delve below zero again, amid financial stability concerns.

But Sweden is now bracing for a dark winter as the pandemic spreads, intensive-care beds fill up and curbs on movement increase. The government has already warned that the next few months will be tougher on the economy than first feared.

As signaled in previous statements, the Riksbank said the repo rate "can be cut if this is assessed to be an effective measure, particularly if confidence in the inflation target were to be threatened." Meanwhile, inflation remains well below the Riksbank's 2 per cent target, coming in at just 0.3 per cent in October.

The Riksbank's decision to expand its stimulus programme comes a fortnight before the European Central Bank is expected to unveil more support measures.

BLOOMBERG