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FINANCE

Riksbank to get more dollars from US Fed

The Riksbank announced on Wednesday that it was entering into a $10 billion reciprocal currency arrangement with the Federal Reserve Bank in the United States.

The move is designed to increase the Riksbank’s ability to supply Sweden with additional dollars and improve overall liquidity in the financial markets.

“Sweden has been affected by the renewed wave of international financial unrest,” said Riksbank Governor Stefan Ingves in a statement.

“This agreement is a part of our precautionary measures and provides the Riksbank with additional flexibility to provide US dollar liquidity if the need should arise.”

Ingves added that Sweden’s financial stability nevertheless remains “satisfactory” and that the country’s banks are “profitable and solvent”.

Riksbank spokesperson Pernilla Meyersson stressed the move was strictly precautionary.

“We haven’t given out a single krona,” she told the TT news agency, adding that so far Swedish banks haven’t had trouble borrowing in the domestic or international markets.

The central banks of Australia, Denmark, and Norway entered into similar agreements, also known as swap lines, to help each address increasing pressure in short-term funding markets for the US dollar.

“This is a confirmation of what we’ve already seen since everything broke out. There is a lack of dollar liquidity in the financial system around the world. The Riksbank now has a direct line of access to new dollars if a bank needs it. Only the Fed can create new dollars,” said Robert Bergqvist, a head economist at the SEB bank, to the TT news agency.

“The idea is that this will be a short-term, temporary measure and don’t think it will have any real economic consequences.”

The Riksbank’s agreement with the Federal Reserve is set to expire on January 30th, 2009.

ECONOMY

Riksbank deputy ‘open to reconsidering raising rates in April’

Martin Flodén, the deputy governor of Sweden's Riksbank, has questioned whether the central bank needs to bring in further rate rises in April, following bank runs on two niche banks in the US and a crisis of confidence at Credit Suisse.

Riksbank deputy 'open to reconsidering raising rates in April'

Uncertainty in the financial market following bank runs in the US and a crisis at Swiss bank Credit Suisse could have changed the playing field, he told TT in an interview. 

“It affects which level the key interest rates need to be in order to have a contractive effect,” he said, referring to the recent days of financial market turbulence. “We can’t just look at key interest rates by themselves. It’s the key interest rate in combination with all of these developments which determines how tight financial policy will be.”

He said it was not yet obvious what decision should be taken. 

“It’s clear that monetary policy needs to stay tight, but what level of interest is that? We need to assess all of the current developments there.” 

‘Could go in different directions’

In theory, there could be such a serious financial crisis, with such a severe effect on lending and banks’ financing costs, that the central bank would be forced to adopt supportive measures, even lowering the key rate.

Flodén doesn’t think Sweden is in that situation, although he thinks there’s a possibility it could happen.

“It’s not something I can see happening right now, at least, although this could go in different directions.” 

He added that he doesn’t see any reason for any “special concern”, toning down the risk that a crisis for two smaller niche banks in the US and at Credit Suisse could affect the Swedish financial system.

“Of course, it could lead to some stress, but there aren’t actually any particular signs in Sweden, which are worrying me,” he said. 

Flodén is one of six members of the Riksbank executive board, led by Riksbank chief Erik Thedéen, responsible for making a decision on whether interest rates will go up again at the end of April.

The Riksbank has indicated that a rate hike of between 0.25 and 0.5 percent from the current 3 percent rate could be necessary.

Flodén described the most recent inflation statistics for February, where inflation unexpectedly rose to 12 percent, as “not good at all”. So-called KPIF inflation, where the effect of mortgage rates is removed, rose from 9.3 percent to 8.7 percent in January. The Riksbank’s goal is 2 percent.

“It’s clear that inflation is still far too high and that monetary policy needs to be focussed on combatting inflation,” he said, adding that inflation statistics for March will be released before the central bank is due to make a decision on whether to raise rates or not in April.

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