(Bloomberg) -- Sweden's central bank meeting this week has the potential to deliver a dovish surprise, even as the market consensus is for no change in policy.
The Riksbank will keep the key interest rate at a record-low minus 0.5 percent on Thursday, according to all 25 economists in a Bloomberg survey. Policy makers are expected to make no changes to the current bond-purchase program, which is set to expire in June, before the next monetary policy meeting. The most likely surprise would be a decision to extend the quantitative-easing plan.
Below is a compilation of strategists' and asset managers' views on surprise risks heading into the Riksbank's meeting:
Nordea AB
- Main risk around the meeting is an extension of the QE program, especially in index-linked bonds by about SEK10b for 2H 2017, analysts including Mats Hyden and Martin Enlund write in a note.
- A lowering of the repo path cannot be ruled out on back of the low wage deal that may put downward pressure on the inflation forecast.
- A reduced easing bias cannot be ruled out either, but there is little reason for the Riksbank to gamble with the SEK at this juncture.
Catella Fondförvaltning AB
- Officials may continue the QE program, albeit at a smaller scale, as the last inflation print came in below their estimates, Thomas Elofsson, Portfolio Manager Fixed Income said. That would be a dovish surprise.
- If the Riksbank doesn't extend its bond-purchase program beyond June, then they have to announce it now and that could lead to a slightly stronger krona, even if it's widely expected and almost fully priced in by the markets.
Storebrand Asset Management AS
- Any announcement that QE won't be extended beyond June is more or less priced in by markets, Andreas Halldahl, Head of Swedish Rates said in emailed comments.
- Any extension would likely mean that they would have to consider buying other types of assets than government bonds.
Danske Bank A/S
- The Riksbank will not extend the current QE program to avoid jeopardizing the functionality of the Swedish government-bond market, analyst Michael Bostrom writes in a note.
- To balance this risk, expect Riksbank to flatten the rate path and to postpone the first rate hike by another quarter or two.
- The potential market surprise would be an announcement of an extension of QE into 2H 2017.
- The market discounts a complete end to QE by summer, asset-swap spreads are back to roughly the same level as prior to QE, especially in the 5Y SGB segment.
- Should Riksbank officially announce that QE will end in June, then this should be SEK positive, but only modestly as this would not come as a complete surprise, strategist Petr Krpata said in emailed comments.
- With the market now more closely looking at the theme of eventual ECB QE tapering, there is one less hurdle for the Riksbank to end QE in June.
ING Groep NV
To contact the reporter on this story: Love Liman in Stockholm at jliman1@bloomberg.net.
To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Keith Jenkins, Anil Varma
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