Sweden[kr]

Institutional framework

According to the Sveriges Riksbank Act, the objective for monetary policy is "to maintain price stability". The Riksbank has interpreted this objective to mean a low, stable rate of inflation. More precisely, the Riksbank's target is to hold inflation in terms of the CPIF around 2 per cent a year. The main monetary policy instrument is the policy rate - the repo rate - that the board of governors decides normally 5 times a year.

The Riksbank has chosen to influence the shortest-term rate on loans between banks from one business day and the next, known as the overnight rate. To steer the overnight rate, the Riksbank uses standing facilities and carries out market operations with its monetary policy counterparties. The purpose of this is to stabilise the overnight rate close to the level of the policy rate - the Riksbank's repo rate - as adopted by the Executive Board of the Riksbank.

Standing facilities

Only participants of the Riksbank's payment system RIX who are also monetary policy counterparties have access to the Riksbank's standing facilities. By using standing facilities for deposits and loans overnight, the Riksbank sets limits - an "interest rate corridor" - for the overnight rate, in which the deposit rate forms the floor and the lending rate the ceiling in the corridor. The overnight interest rate should lie inside the interest rate corridor because a monetary policy counterparty in need of liquidity can always borrow from the Riksbank against collateral at the lending rate and a monetary policy counterparty with surplus liquidity can deposit the surplus in the Riksbank at the deposit rate. As there is a difference between the deposit and lending rates, counterparties have an incentive with regard to intraday loans to agree on an interest rate that lies between the rates they would pay to or receive from the Riksbank.

The pricing of the standing facilities is such that the deposit rate equals the Riksbank's policy rate minus 0.75 percentage points and the lending rate equals the policy rate plus 0.75 percentage points. If the balance of a monetary policy counterparty's account in RIX shows a deficit when the payment system closes for the day, the counterparty will have to pay the lending rate on the balance overnight (ie until the next business day). If the balance of a monetary policy counterparty's account shows a surplus when the payment system closes, the counterparty will earn the deposit rate on the sum overnight. The sum that can be borrowed in the lending facility is limited by the adjusted value of the collateral provided by the counterparty. There is no limit on how much a counterparty may deposit in the deposit facility.

Market operations

It is important for the Riksbank's ability to steer the overnight rate within the interest rate corridor so that the liquidity of the banking system is in balance at the end of the day. To ensure that this is the case, the Riksbank carries out regular market operations.

Weekly market operations

Since 2008, the banking system has had a liquidity surplus in relation to the Riksbank. Every week, the Riksbank therefore offers Riksbank Certificates with one week's maturity at the policy rate to absorb this liquidity. The Riksbank's monetary policy counterparties are thus given the opportunity to invest in a risk-free security with short maturity. The volume of issues corresponds to the banking system's liquidity surplus in relation to the Riksbank minus an amount deemed appropriate at each issue. If demand for certificates is greater than the offered amount, allocation takes place on a pro rata basis. If the banking system had had a liquidity deficit in relation to the Riksbank, the Riksbank would instead have supplied liquidity via weekly monetary policy repos.

Daily market operations

To stabilise the overnight rate close to the policy rate, the Riksbank offers a daily overnight deposit facility at the policy rate minus 0.10 percentage points if there is a surplus and credit against collateral at the policy rate plus 0.10 percentage points if there is a deficit. The Riksbank does not take in/loan out an amount that is larger than the banking system's total surplus/deficit. These fine-tuning transactions are carried out every business day between 16.00 and 16.40. Allocation takes place on a "first come, first served" basis, as long as there are funds left to lend or deposit.

The total volume that can be fine-tuned is announced just after 16.00 in RIX, after banknote and coin clearing has taken place at 16.00. However, the last banknote and coin clearing does not occur until 16.20 and can affect the volume that is to be fine-tuned. The clearing at both 16.00 and 16.20 only concerns flows in one direction, "banknotes in", ie the monetary policy counterparties' liquidity positions vis-à-vis the Riksbank can only increase and not decrease. In recent years, flows at these two times have virtually never occurred. The window for fine-tuning transactions closes at 16.40 and RIX closes at 17.00.

Non-standard monetary policy measures

To make monetary policy more expansionary and to ensure that the inflation target is reached the Riksbank has bought Swedish government bonds since February 2015.