Riksbank maintains its rate unchanged at 0.00% as expected; Riksbank maintains asset purchase envelope of SEK 700bln; Repo path maintained at 0.00% for the entirety of forecast horizon

• The Swedish economy has recovered quickly and inflation is expected to become temporarily higher than 2% in the coming year, before falling back again
  


• Rising global demand and transport problems have led to consumer prices increasing at a fast pace in several areas. However, the price upturns are assessed to be largely temporary. When growth enters a calmer phase, the bottlenecks are expected to resolve and inflation to slow down.


• The Riksbank will also continue to purchase securities during the fourth quarter, in line with the earlier decisions. The Executive Board’s forecast is that the holdings of securities will be more or less unchanged during 2022.
  


• The Executive Board may cut the repo rate or in some other way make monetary policy more expansionary if inflation prospects weaken. This applies in particular if confidence in the inflation target were to be under threat. A less expansionary monetary policy might be justified if inflation were to risk overshooting the target significantly and persistently.

Analysis details (08:40)

• Current policy parameters are unchanged, as expected. The Riksbank acknowledged the recent pronounced inflation upside; but, judges this to be largely temporary. As such, the repo path has been maintained at 0.00% for the entire horizon - this goes against some marginal calls for a hike to be priced in at the end of the horizon. While the decision disappoints those calls, and thus explains the modest uptick seen in EUR/SEK, it is perhaps not too surprising if the inflation upside is deemed to be transitory; additionally, we do not yet have the Q4-2024 projection, which could be an opportune placement for such an increase.


• Elsewhere, the QE remit was maintained as expected and the Bank expects holdings through 2022 to be more or less unchanged. A view that does not reflect the differing comments between some members on whether the holdings should begin to be reduced next year or not.


• Overall, while the main announcements are as expected the release of the meeting's minutes will be heavily scrutinised for insight into the repo path, particularly given the July minutes had Breman and Floden discussing the potential for a more hawkish long-end path; the magnitude of which is made all the more pertinent by it occurring prior to the recent inflation increase, irrespective of it being judged temporary. Elsewhere, for any insight into the discussion around securities holdings for 2022.

21 Sep 2021 - 08:30- Fixed IncomeImportant- Source: Newswires