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FINANCIAL CRISIS

Riksbank sees ‘light at end of the tunnel’

As it announced further measures to ease strained credit markets on Monday, the Riksbank said that the recent international action to restore confidence to the markets had brought light to the tunnel of the global financial crisis.

Riksbank sees 'light at end of the tunnel'

In a statement issued as stock markets rallied strongly after weekend announcements by top finance ministers and central bankers around the world, the Swedish central bank said the action was a “success.”

“We are now seeing light at the end of the tunnel with regard to the ongoing financial crisis,” Riksbank governor Stefan Ingves said in the statement.

The world financial system has been shaken to the core with ever increasing violence over the last three weeks as banks struggle to stay afloat and credit has been squeezed.

“The fact that the world’s finance ministers and central bank governors were able to agree at the weekend on a five-point plan to restore confidence in the financial markets is a major success,” the central bank said.

The Swedish stock market had rallied by 7.44 percent by mid-day.

At the same time, the Riksbank said I would lend an additional $10 billion and 80 billion kronor ($11.3 billion) in additional auctions to be held this week, with each loan carrying a three-month maturity.

“The Riksbank has taken a number of measures at regular intervals in recent weeks to facilitate the supply of credit and improve the functioning of the financial markets. We will continue with this until confidence has been restored and the supply of credit to companies and households is once again functioning normally,” said Ingves.

The Riksbank has taken a number of measures to bolster the liquidity of Sweden’s bank, both in US dollars and in Swedish kronor.

The bank also said it planned additional measures to facilitate loans from banks to companies outside the financial sector.

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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