Sweden

Sweden[SEK]

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 0.10 percentage points and the lending rate equals the policy rate plus 0.10 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 or via lending against eligible collateral.

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. To mitigate the effects of the corona pandemic on the Swedish economy the Riksbank has since March 2020 extended its framework for assets purchases to include covered bonds, municipal bonds as well as securities issued by non-financial companies in addition to the purchases of government bonds. To avoid the shortage of credit causing a prolonged recession, the Riksbank is since March 2020 offering the banks up to SEK 500 billion against collateral for onward lending to non-financial companies operating in Sweden (Funding for lending, FFL). At the same time the Riksbank introduced extraordinary weekly market operations with longer maturity to strengthen the banks' access to liquidity in Swedish krona. From 18 March 2020 monetary policy counterparties were offered once a week to borrow unlimited amounts (given adequate collateral) with a maturity of 3 months at an interest 0.2 percentage points above the Riksbank's repo rate. As of 6 July 2020, the Riksbank offers its monetary policy counterparties loans with a three-month or six-month maturity with full allotment, against adequate collateral, within the framework of weekly market operations against an interest rate corresponding to the applicable repo rate.

Institutional setup of monetary policy decisions and operations

Policy decision body, size and composition Executive Board
Major mandates 1 Maintain price stability
Decision-making process Decision by the Executive Board
Frequency / length of meetings Five scheduled monetary policy meetings per year
Frequency of announcements Same
Main policy target Repo rate

Overview of key features

Key policy rate Repo rate
maturity (days) 7
Operating target No formal target
maturity (days)
Standing facilities Lending, deposit
Corridor width (bp) 20
Reserve requirements No
maintenance period N/A
Main operation 2 Issuance of Riksbank certificates
functions Liquidity withdrawal
maturity (days) Liquidity withdrawal
regular interval Liquidity withdrawal
frequency Liquidity withdrawal
Overall frequency Weekly
Discretion left to operational desk The amount offered to monetary policy counterparties in the weekly auctions of repos or Riksbank certifcates.
Key policy signals via
announcement √
keynote tender √
standing facility √
other √

Monetary policy communication

Explicit use of forward guidance Yes (repo rate path)
Timing / media of policy announcement Five times a year, Monetary policy report and press release are published 9.30 the day after the monetary policy meeting
Policy announcement and documents Monetary policy report and press release
Explaining policy decisions Minutes from the monetary policy meeting (published 2 weeks after the monetary policy meeting)
Dissemination of minutes (timing / media) Minutes from the monetary policy meeting is published 2 weeks after the monetary policy meeting
Content of minutes Summary of Board members’ discussions during the monetary policy meeting
Publication of forecasts 3 Repo rate path and inflation
Publication of projected path of policy rate 4 Yes

Reserve requirements: ratios and size

Main functions served N/A
Domestic currency
Foreign currency
Average
Required reserves 0%
Required reserve as % of GDP
Actual reserves
Actual reserve as % of GDP

Main features of reserve requirements

Averaging N/A
Carry-over N/A
Type N/A
Maintenance period N/A
end (day) N/A
Calculation period N/A
end (day) N/A
Lag before maintenance N/A
Vault cash N/A
restrictions N/A
Remuneration N/A
average rate N/A
marginal rate N/A
Framework last changed N/A

Liquidity position and forecasting

Structural Position Surplus
Most volatile factor(s) Public demand for Notes and coins
Most unpredictable factor(s)
Forecast horizon(s) 1 week repo rate + 150bps
Frequency Weekly
Frequency of revision N/A
Forecast published? Yes

Standing facilities: lending / market ceiling

Name Standing facility
Form Collateralised lending
Pricing method Repo rate plus 10 bp
Maturity O/N
Access limited by/to Monetary policy counterparties
Function(s) Provides liquidity insurance

Standing facilities: deposit / market floor

Name Standing facility
Form Deposit
Pricing method Repo rate minus 10 bp
Maturity O/N
Access limited by/to Monetary policy counterparties
Function(s) Provides liquidity insurance

Open market operations: repo or reverse repo

Name/Type 5 N/A (See table 7b – liquidity surplus is drained by issuance of Riksbank certificates)
Maturity
Frequency
Pricing method
Access limited by/to
Function(s)

Open market operations: central bank bills

Name Riksbank certificates
Total issuance An amount up to the banking systems net position towards the Riksbank is offered
Maturity 1 week
Restrictions on possible maturities No
Pricing method Fixed rate auction, pro rata allocation
Access limited by/to Monetary policy counterparties
Discretion left to operational desk Choice of amount offered

Open market operations: FX swaps

Maturity Adapted to the situation
Frequency When needed
Pricing method Bilaterally
Access limited by/to Monetary policy counterparties
Function(s) Add or drain liquidity on the overnight loan market in SEK

Other significant liquidity management means

Name/Type 6 OT Purchase of Swedish government bonds, covered bonds, municipal bonds and corporate bonds.
Form Reverse auctions on electronic trading platform, corporate bonds are purchased bilaterally
Frequency Weekly
Maturity May include all maturities
Pricing Method Multi price auction
Access limited by/to Monetary policy counterparties
Function(s) Monetary policy

Settlement systems and intra-day liquidity facilities

Settlement system RTGS, current platform launched 2009
Intra-day liquidity facility Intra-day collateralised loan
Charge Lending against collateral without interest rate
Foreign currency settlement system No
CLS participation by banks Yes
Other settlement system(s) Securities settlement system

Collateral

Standing facilities: List of eligible collateral Government bonds, Treasury bills, Municipal bonds, Supranational bonds, Covered bonds and Corporate bonds (minimum rating A-/A3).
OwnNormally, qwn-name securitiescovered bonds as well as securitiescovered bonds issued by closely related entities are not accepted. However, this does not apply for covered bonds or bonds guaranteed by central government, but then the rating requirement is AA-/Aa3. These restrictions were temporarily lifted during the corona pandemic.
Securities issued by credit institutions are only accepted if they are covered or guaranteed by central or local government.
Standing facilities: Discretion of central bank on collateral 7 The Riksbank can decide on a security’s creditworthiness regardless of any external rating.
The Riksbank can always change the rules on eligible collateral. This would normally require a consultation process with counterparties.
Open market operations: List of eligible collateral Same as for standing facilities.
Open market operations: Discretion of central bank on collateral 8 Same as for standing facilities.

Dissemination of operational information: liquidity forecast

Forecast published? Yes
Channel(s) Reuters, Blomberg
Timing Weekly
Remarks

Dissemination of operational information: open market operations

Volume and price published? Yes
Channel(s) Reuters, Bloomberg
Timing Results of Riksbank certificates auctions are published on Tuesdays 15 minutes after closed auction

Dissemination of operational information: standing facilities

Lending facility usage: Channel(s)
Lending facility usage: Timing
Deposit facility usage: Channel(s)
Deposit facility usage: Timing

Other information dissemination

Type N/A
Channel(s) N/A
Timing N/A

1 Describe as well the legal status of the mandate and involvement of government

2 RP = reversed purchase (repo, inject liquidity), RS=RRP=reversed sale (reverse repo, absorb liquidity), RT=reversed transaction (repo or reverse repo).

3 For instance, economic and inflation forecasts related to policy decision.

4 If applicable, describe the publication of any fan-charts or uncertainty bands around the forecasts/projections.

5 RP=Reversed purchase (“repo”), RS=RRP=Reversed Sales (“reverse repo”), RT=Reversed transaction (RP or RRP).

6 OT = Outright Transaction, DB = Direct Borrowing, DL = Direct Lending.

7 Discretion of the central bank to expand collateral types, and list of additional collateral types that the central bank can take on a discretionary basis. Also, additional information such as delays required if discretionary collateral changes.

8 Discretion of the central bank to expand collateral types, and list of additional collateral types that the central bank can take on a discretionary basis. Also, additional information such as delays required if discretionary collateral changes.