As seen in the chart right, the Riksbank has made a significant reduction in its inflation outlook, but its growth and employment forecasts remain broadly unchanged. On the back of that, Riksbank has substantially flattened the repo rate path, going "lower-for-longer". Actually, there has never been a bigger cut in the end-point of the repo rate path during the era of negative repo rates (since February 2015). Also worth noting is that the short end of the MM curve up to Q1 18 trades above the Riksbank's new repo forecast (chart below).
In essence, we interpret the Riksbank's decision as awaiting the ECB's next move: "Prior to the monetary policy meeting in December, the Executive Board is also prepared to extend the purchases of government bonds. As the current asset purchase programme will run for the remainder of the year, there is thus opportunity to await further information that can affect the decision to extend the purchases. Examples of such information include the outcomes for inflation in the near term and actions of other central banks."
Hence, we stick to our call that the Riksbank will expand QE in December by SEK20bn in nominal bonds and SEK10bn in linkers, a slight tapering compared to the previous expansion.
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