The Riksbank's third round of government bond buying got underway today. But it is unlikely that the programme will be enough to prevent the krona from appreciating and thereby depressing inflation.
A key worry for the Riksbank is a sharp rise in the krona against the euro because of the disinflationary impact that this would have. It is therefore trying to counter the currency impact of the ECB's quantitative easing programme.
The Riksbank is likely to respond initially through more rate cuts. But although the central bank has cut rates below zero, the krona is stronger against the euro than the relative interest rate differential would suggest. Accordingly, the Riksbank will probably need to be more aggressive with its unconventional monetary policy stimulus.
"We think that the Riksbank will have to broaden its unconventional policy stimulus. It has already mentioned FX intervention and loans to companies as options. The former seems more likely as this would directly tackle krona strength and help to boost inflation. By contrast, the need to boost bank lending to firms is less urgent, given that it is already growing by about 7% y/y and investment grew by 6.6% in 2014." said Capital Economics
