Riksbank’s December meeting minutes slightly dovish than anticipated, says Nordea Bank

During its December meeting, the Riksbank maintained the repo rate at 0.5 percent and did not make any revisions to the repo rate path. The quantitative easing program was extended into the first half of 2017 with SEK 15 billion nominal bonds and 15 billion index-linked. Also, the central bank stated that the redemptions in the bond portfolio of around 30 billion in 2017 were to be reinvested smoothly over the year, noted Nordea Bank.

The minutes of the December meeting was released today. Most of the members shared the opinion that there are still risks that could hurt the upturn in inflation. The outcomes for inflation have been below expectations in recent months, signifying the uncertainty over how rapidly inflation would accelerate.

The development of the SEK is also worrisome for most members, and the ECB decision to extend its bond purchases was of significant to those members that voted to extend Sweden’s QE program. Skingsley and Flodén were worried about the function of the nominal bond market. The indication of scarcity in the repo market was emphasized by Flodén as a reason to believe that the effectiveness of additional QE into nominals might be less going forward, noted Nordea Bank.

Meanwhile, the three members that made reservations against the extended quantitative easing program were of the opinion that the repo path indicated a much high possibility of a near-term rate cut.

“All-in-all, today’s minutes was a touch less dovish than we had expected”, added Nordea Bank.