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UPDATE 1-Swedish central bank split over need to extend QE -minutes
November 9, 2017 / 9:47 AM / a month ago

UPDATE 1-Swedish central bank split over need to extend QE -minutes

* Riksbank to decide on bond purchases in December

* Held rates and policy unchanged in late October

* Analysts see extension of QE unlikely (Adds analyst comment, crown reaction)

STOCKHOLM, Nov 9 (Reuters) - Swedish central bankers are broadly evenly split over the need to extend the current bond-buying programme at this year’s final monetary policy meeting, the minutes of the most recent meeting, published on Thursday, showed.

Sweden’s central bank has held policy at crisis levels for years while fretting tightening policy too soon would lead the crown to strengthen and push down inflation again.

But with strong economic growth and inflation currently above the 2 percent target, the focus is now turning to normalising policy, starting with the question of whether to slow or stop the bank’s asset-purchase stimulus programme.

Deputy Governor Martin Floden said he “sees no reason to make a decision on this today, but he wishes nevertheless to point out that he does not expect to advocate an extension to the programme at the meeting in December,” the minutes showed.

He was supported by Deputy Governor Cecilia Skingsley and Henry Ohlsson, who said his opinion remained that repo rate rises should start at the beginning of 2018.

All three entered reservations against the decision to extend the purchases of government bonds in April this year.

Governor Stefan Ingves used his casting vote in favour of extending bond purchases at that meeting and there is little indication that either he or colleagues Per Jansson and Kerstin af Jochnick have become less dovish.

Both Ingves and Jansson said deviating from the kind of ultra-loose policies followed by central banks in the euro zone and elsewhere risked a stronger crown and lower inflation.

Jansson said he was very doubtful whether Sweden could avoid a quick appreciation of the crown “if the Riksbank stops its asset purchases completely at the end of the year, while the ECB continues to make further purchases during 2018”.

The European Central Bank decided late in October to continue to buy bonds until September 2018, but at a slower pace.

“We don’t think the Riksbank will extend the QE programme, but, if there is a big negative surprise in the upcoming CPI figures, they might reconsider,” economist Knut Hallberg at Swedbank said.

The crown initially strengthened on the statement, but was broadly unchanged at 0910 GMT.

Late in October the Riksbank left its ultra-loose policy unchanged, saying it expected to raise rates in the middle of 2018 and that it would decide on its bond-purchase programme in December. ($1 = 8.3730 Swedish crowns) (Reporting by Stockholm Newsroom; editing by Niklas Pollard and Catherine Evans)

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