Mixed messages from the Riksbank

The dovish shift in the Riksbank’s policy stance this week was a step in the right direction, but we still think that policymakers and investors are overestimating the potential for interest rate hikes in Sweden in the future. Meanwhile, the Riksbank’s decision to start quantitative tightening (QT) while also buying more bonds puts it in the strange position of seemingly trying to both ease and tighten policy at the same time. We doubt that QT will survive in its current guise and think that any steps to significantly reduce the size of the balance sheet will ultimately be pushed out until 2023 at the earliest.