Main takeaways. The Riksbank kept the repo rate and the repo rate path unchanged as expected. Also as expected, it ended the QE programme. This said, it said that from the beginning of January 2018 it will continue to buy government bonds worth some SEK11bn per quarter for six consecutive quarters (to mid-2019). This is the sum of around SEK15bn in coupon payments and the redemption of the SGB1052 bond in early 2019. In effect, this means the Riksbank will increase its bond purchases compared with the recent pace. In terms of the macro forecast, the Riksbank raised its inflation forecast slightly for 2018, while keeping its GDP forecast unchanged. In our view, both these forecasts are too optimistic given that inflation in 2017 has been driven by temporary factors and given the likely drag on growth from declining property prices.
Normalisation strategy. This time, the Riksbank elaborated on some of the sequencing of a future normalisation of monetary policy. The first step is to end net purchases while reinvestments of redemptions and coupons continues. The second step is to start slowly raising the repo rate (from Q3 18 according to the forecast) while reinvestments continue. Finally, once the repo rate has reached an appropriate level (whatever that is) it will be time to reduce or end reinvestment. Hence, we expect it to take a long time to reduce the balance sheet.
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