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INTEREST RATE

Libor scandal prompts calls for probe in Sweden

Calls are mounting in Sweden for a review of the country's interbank lending system following revelations about alleged manipulation of the London interbank offered rate (Libor).

Published: 16 July 2012 17:20 CEST

Following news that Barclay’s bank manipulated the Libor rate, used by banks in London to set interest rates charged when lending to other banks, the Swedish Property Federation (Fastighetsägarna) has demanded an investigation into how a similar system works in Sweden.

The group claims that banks in Sweden might also have reason to charge customers higher rates than are warranted, Sveriges Television (SVT) reported.

One reason why the Property Federation wants the probe is that Sweden has one of the largest gaps in the western world between the benchmark interest rate set by the central bank and rates charged on inter-bank loans – known in Sweden as the Stockholm interbank offered rate (Stibor).

“If it’s happened [in England], it can happen here and we must bring be able to clarify that it hasn’t happened. It’s important to put the question on the table, in any case,” the federations chief economist, Tomas Ernhagen, told SVT.

But the Riksbank, which has followed Sweden’s interbank rates for a relatively long period of time, doesn’t believe there are any irregularities with the Stibor rate, Riksbank head Stefan Ingves said in a recent press conference.

According to Annika Falkengren, head of the SEB bank, Sweden’s relatively high interbank lending rate is a consequence of how the central bank has reacted to the issue.

“Sweden is one of the few countries that hadn’t had injections of liquidity,” she told the TT news agency, comparing Sweden to other European countries which have received additional liquidity from the European Central Bank (ECB).

She added, however, that Sweden has a lower level of liquidity in its financial system compared to other countries.

“Sweden hasn’t been doping,” she said, employing a common metaphor referring to athletes who inject performance enhancing drugs.

On Monday, the 3-month Stibor rate was at 2.08 percent, compared to 2.56 percent a year ago, according to the Riksbank.

In July 2008, the Stibor rate was at 5 percent.

The rate is calculated as an average of the rates charged on loans banks make to one another and is calculated daily.

According to the Riksbank, one reason that the differences between the interbank rate and benchmark interest rates are larger in Sweden is that Swedish banks have a great deal of financing in foreign currencies.

TT/The Local/dl

twitter.com/thelocalsweden

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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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