12 Feb 2015
Riksbank cuts rates to negative, might lower further to -0.25% - SEB
FXStreet (Barcelona) - The Research Team at SEB comments on today’s historic step by the Riksbank to cut repo rate to negative (to -0.10%).
Key Quotes
“The Riksbank board surprised even the most dovish expectations by cutting the repo rate and initiating a bond purchase program already at the February meeting.”
“Furthermore the Riksbank indicates that the repo rate may be reduced further in between the monetary policy meetings if it thinks the banking sector can handle negative rates. This means that the repo rate could be reduced to -25% before the April 29 meeting and that the -0.10% should be seen as a test balloon for negative rates."
“The market should therefor price a significant probability that the Riksbank will lower the repo rate to -0.25% in either March or April. Furthermore the +/- 10bps bands in the fine-tuning operations were re-installed.”
“There is no doubt that we should take declining inflation expectations seriously as the actions today primarily aims at maintaining confidence in the inflation targeting policy.”
“However, asset purchases are not optimal in a country as Sweden where household credit growth is around 6% (SEB’s home price indicator is at record levels and property shares continue to rush).”
“The announcement today should be marginally (short-term) SEK negative.”
“However, we don’t see scope for a Swedish QE program to match the size of the ECBs we believe that EUR/SEK is close to peak.”
Key Quotes
“The Riksbank board surprised even the most dovish expectations by cutting the repo rate and initiating a bond purchase program already at the February meeting.”
“Furthermore the Riksbank indicates that the repo rate may be reduced further in between the monetary policy meetings if it thinks the banking sector can handle negative rates. This means that the repo rate could be reduced to -25% before the April 29 meeting and that the -0.10% should be seen as a test balloon for negative rates."
“The market should therefor price a significant probability that the Riksbank will lower the repo rate to -0.25% in either March or April. Furthermore the +/- 10bps bands in the fine-tuning operations were re-installed.”
“There is no doubt that we should take declining inflation expectations seriously as the actions today primarily aims at maintaining confidence in the inflation targeting policy.”
“However, asset purchases are not optimal in a country as Sweden where household credit growth is around 6% (SEB’s home price indicator is at record levels and property shares continue to rush).”
“The announcement today should be marginally (short-term) SEK negative.”
“However, we don’t see scope for a Swedish QE program to match the size of the ECBs we believe that EUR/SEK is close to peak.”