Sweden’s central bank is to trial a more expansionary monetary policy at it launches its own asset purchase scheme and takes repo rates negative.

Riksbank announced that it would cut repo rates by 10 basis points, resulting in a negative rate of 0.10%, and that it would begin buying SEK10bn (€1.05bn) worth of government bonds in a move branded “historic” by local financial group SEB.

In a statement, SEB argued that the -0.10% rate should be seen as “a test balloon for negative rates”, with further decreases likely in the near future.

It also argued that the asset purchase programme – which will see Riksbank buy SEK10bn of nominal Swedish debt with maturities of 1-5 years – was “not optimal”, despite declining inflation rates.

It said it would maintain its expansionary monetary policy until its target measure of inflation – CPIF, which excludes energy prices – once again rose to 2% from its December level of 0.5%.

The move comes less than a month after the European Central Bank announced it would launch its own €60bn a month asset purchase programme in March, with critics warning the changes in asset allocation would be “toxic” for pension funds.

The negative interest rates recently introduced by the Swiss National Bank have also caused problems for local pension funds, with the institution recently ruling out protecting the industry from the pain of the move.

Mats Glenhage, head of business finance at Swedish insurer Folksam, admitted the negative repo rate could impact the return of those saving into pensions, but predicted that the action would initially have a marginal impact.

He further pointed to the insurer’s diversified portfolio as being able to offset any immediate impact.

However, others were less relaxed about the central bank’s move.

Speaking at the Terminsstart Pension conference in Stockholm, Nordea chief economist Annika Winsth said the rate cut would cause unnecessary concern, Pensionsnyheterna reported.

Winsth added that both the rate decision and the move towards quantitative easing signalled a concern about an oncoming crisis, and that the bank did not believe there would be a recovery in the near future.

SEB noted that many investors would have been surprised by Riksbank’s doveish decision but warned about having too great an expectation of the Swedish quantitative easing (QE) programme.

“We don’t see scope for a Swedish QE programme to match the size of the ECBs, [and] we believe that EUR/SEK is close to peak,” it said. 

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