It's a NIRP world and you are either in it, or are determined to lose the currency wars. And hours ago, the world's oldest central bank, that of Sweden, announced that it too would join its NIRP peers in an attempt to preserve its currency's fighting power in the global currency wars which make a mockery of what is going on in Ukraine, by lowering the benchmark interest rate to -0.1%, but also launch QE by buying SEK 10 billion of government bonds, thereby making sure that the stock of available debt in private hands is even lower and that central banks monetize even more than merely "all" of all net issuance in 2015.
From the press release:
There are signs that underlying inflation has bottomed out, but the situation abroad is now more uncertain and this increases the risk that inflation will not rise sufficiently fast. The Executive Board of the Riksbank has therefore decided to cut the repo rate by 0.10 percentage points, to -0.10 per cent, and to adjust the repo-rate path down somewhat. At the same time, the interest rates on the fine-tuning transactions in the Riksbank's operational framework for the implementation of monetary policy are being restored to the repo rate +/- 0.10 percentage point. Moreover, the Riksbank will buy government bonds for the sum of SEK 10 billion. These measures and the readiness to do more at short notice underline that the Riksbank' is safeguarding the role of the inflation target as a nominal anchor for price setting and wage formation.
Economic activity in Sweden strengthening but inflation is too low
Although the recovery abroad is slow, growth in Sweden will benefit from the low oil prices, the weaker krona and the very low repo rate. GDP growth is expected to increase at a faster pace in the coming period and the labour market is expected to strengthen.
Inflation is still low, but there are now signs that underlying inflation, for instance, the CPIF excluding energy, has bottomed out and is rising. The krona is weaker than anticipated, which will also contribute to somewhat higher inflation. However, low energy prices are expected to hold down CPIF inflation in the year immediately ahead.
Readiness to do more
The measures the Riksbank is now taking underline that the Riksbank is safeguarding the role of the inflation target as a nominal anchor for price setting and wage formation. To ensure that inflation rises towards the target, the Riksbank is prepared to quickly make monetary policy more expansionary, even between the ordinary monetary policy meetings, should the need arise. This will primarily entail making further repo-rate cuts, postponing the first repo-rate increase and increasing the purchases of government bonds. In addition, there is the possibility of a programme of loans to companies via the banks.
As the WSJ adds, analysts were divided ahead of the rate decision about which way it would go. A small majority expected unchanged rates while others had forecast the repo rate could be cut as low as minus 0.25%. In response to the move, the Swedish krona weakened against the euro, which rose to around 9.65 kronor from 9.50 kronor.
It's called NIRP for a reason: "Sweden’s two-year bond, which is more responsive to monetary policy changes than longer-dated bonds, traded at a yield of minus 0.23% after the decision compared with minus 0.18% before."
While it is unclear if NIRP is the missing link that will fix all that ails the deflating Swedish economy, one thing is clear: the Riskbank has just given the all clear to BTFATH:
But no matter just how drastic this latest market intervention by yet another central bank, most wanted "moar"
Analysts were initially underwhelmed by the scale of the bond-buying program, known as quantitative easing, but noted the Riksbank’s comment that it is ready to do more in between scheduled meetings.
“Give me 10 billion kronor and I’ll say thank you very much but it’s the smallest quantitative easing ever,” said Société Générale analyst Kit Juckes.
SEB analyst Carl Hammer said he thought 10 billion kronor could be “just the beginning,” noting “they left the door open.”
Analysts at Nordea bank said the overall message from the Riksbank was “extremely soft.”
And sure enough, when this initial attempt to boost stock prices, pardon, inflation is found to be lacking, expect to see much more.