Riksbank signals gradual shift towards tighter policy

The Riksbank’s announcement that it will end its net asset purchases this month is the beginning of a shift towards tighter monetary policy in Sweden. We think that it will ultimately raise interest rates more quickly than most other analysts anticipate, so today’s small rise in the krona is a sign of things to come. As expected, the Riksbank left its policy rate, and its policy rate forecast, unchanged today. It also decided not to extend quantitative easing into next year, as we expected. This was probably a close call. After all, policymakers had previously worried that without very loose monetary policy in Sweden, the krona would strengthen substantially as the ECB moved very gradually towards normalising its monetary policy. With that in mind, the krona’s depreciation over the past few months has probably eased policymakers’ concerns. Since early October, it has weakened by almost 4% against the US dollar and nearly 5% against the euro. But the Riksbank will continue to keep a close eye on the exchange rate. Indeed, in today’s statement it repeated that it is “important that the krona does not appreciate too quickly”.