|FOCUS17/04/20191FOCUS|SWEDEN17April2019SEK–QEreinvestmentpolicytosettonefor2019KEYMESSAGESAtits25Aprilmonetarypolicymeeting,theRiksbankwilllikelyannouncefurtherdetailsofitsreinvestmentpolicy.ThedecisionwillbeakeydriverfortheSEKthisyear,inourview.WearguethattheSEK’sbetatotheRiksbank’sQEprogrammeislarge.AstrongportfoliorebalancingeffectawayfromSEKassetshasbeenevidentsincetheprogrammestartedin2015.Theportfoliorebalancingchannelhasbeenstrongbecause(i)theRiksbank’sbalancesheetexpansionhasbeensolarge(relativetothedomesticbondmarket);and(ii)Swedenhasalargenetdeficitinitsdebtportfolioinvestmentaccount.tothesizeofthedomesticbondmarketislarge:onlytheBankofJapanholdsalargerpercentageshareofitsdomesticbondmarket(seeFig.1).DuringtheRiksbank’sQEprogramme,foreigninvestorholdingsofSwedishgovernmentdebtmorethanhalved–fromaroundSEK500bnin2015toalowofjustaboveSEK200bninQ32018(Fig.2).Hence,theRiksbank’sQEhashadastrongportfoliorebalancingeffect.RiksbankexpectedtounveilreinvestmentplanatnextMPCmeeting:TheRiksbankiswidelyexpectedtoannouncethedetailsofitsreinvestmentpolicyfor2019and2020atitsmonetarypolicymeetingon25April.Thecentralbank’snextbondredemptionisSEK62.609bnon1December2020.TheRiksbankcouldannouncethatthislargeprincipalpaymentdueinDecember2020willbedistributedacrosstherestof2019and2020.AsFigure3shows,shortSEKFXinvestorpositioningsuggeststhatitwillannouncethatatleastaportionofthispaymentwillbedistributed.SuchanannouncementwouldseetheRiksbank’sbalancesheetcontinuetoexpandthisyear,asitdidin2018,eventhoughQEhasformallyended.ItwouldalsolikelyresultinforeigninvestorscontinuingtorebalancetheirportfoliosawayfromSEK-denominatedassets.PleaserefertoimportantinformationattheendofthisreportFig.1:TheRiksbankhas‘out-QE’d’mostmajorcentralbanksFig.2:PortfoliorebalancingeffectsofRiksbankQESources:StatisticsSweden,BNPParibasSources:xxx,xxx,BNPParibasG10FXSources:Riksbank,Fed,BoE,ECB,BoJ,BNPParibas,MacrobondRiksbankQEprogrammeandtheimpactonSEK:InJanuary2015theRiksbanklaunchedaquantita...
