The ring-a-rosy game of quantitative easing has struck again with the Riksbank of Sweden announcing it will purchase an additional 65bn krona ($10.7bn) of bonds each month – the fourth expansion of the QE programme that it started in February 2015. The bank decided to maintain its benchmark repo rate at -0.35%.
In a statement the Riksbank said, “There is still considerable uncertainty regarding the strength of the global economy and central banks abroad are expected to pursue an expansionary monetary policy for a longer time” and that “an initial raise (sic) in the [repo] rate will be deferred by approximately six months compared with the previous assessment.”
Many state central banks are battling to fight the currency wars that have re-ignited after the announcement by the European Central Bank that it is considering extending its QE programme. The problems for Sweden stem from the fact that its currency is rising and Swedish exports are falling. Inflation is just above zero, well below the Riksbank target of 2.0%. The governor of the bank, Stefan Ingves, flagged that it could cut rates further into negative territory if it needed to. “We do have more space,” he said, “I wouldn’t pin down a floor presently, so we can go below -0.35pc if we need to do that”.
Sweden’s QE programme represents around 5.0% of its GDP and around 34%c of total outstanding debt. This new bond buying will expand the Riksbank balance sheet to around 200bn krona ($33bn) by the end of June 2016. Sweden has a population of just under 10 million people so to put that into an Australian perspective it would be like the RBA buying $107 billion of Australian bonds.
Adding to the uncertain economic environment are the waves of migrants heading to Sweden that are likely to result in huge increases in government spending.