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CURRENCY

Riksbank to boost foreign currency reserves

The Swedish krona weakened somewhat on Wednesday following an announcement from the Riksbank that it planned to borrow 100 billion kronor of foreign currency.

Published: 27 May 2009 16:04 CEST
Riksbank to boost foreign currency reserves

Throughout the financial crisis, the Riksbank has loaned tens of billions of kronor worth of foreign currency to Swedish banks in order to help ensure their liquidity.

But now the Riksbank wants to replenish its foreign currency reserves in case further liquidity assistance is needed, the Riksbank said in a statement on Wednesday.

In addition to making a number of US dollar loans to Swedish banks to maintain liquidity during the ongoing financial crisis, the Riksbank has also entered into swap agreements with the central banks of Iceland, Estonia and Latvia.

“We still need to be prepared for the eventuality that the financial crisis may be both severe and prolonged. This is why we need to strengthen the foreign currency reserve. This is part of our work to safeguard financial stability,” said Riksbank governor Stefan Ingves in a statement.

The Riksbank said it plans borrow the funds from the Swedish National Debt Office (Riksgälden), adding that the boosting of its foreign currency reserves is “temporary” and will be phased out along with other measures currently in place to mitigate the effects of the financial crisis.

But Johan Javéus, head currency strategist with SEB Merchant Banking, questioned how great an effect the move would have.

“The liquidity effects will be negligible,” Javéus told the Direkt news agency.

“We’re talking about interest payments on borrowing and that’s not big enough amount to affect the krona, especially in the short-term.

He added that Riksbank’s actions could add to concerns that the bank knows about worrying developments in the Baltics of which the general public is not yet aware.

However, Javéus theorized that speculation over what the Riksbank may know could put pressure on the krona, although currency movements thus far have been marginal.

Shortly after 4pm on Wednesday, the krona was trading at 7.65 kronor to the dollar, down about 1.5 percent from the opening level of 7.55 kronor per dollar.

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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.

Published: 16 March 2023 16:20 CET
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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