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FINANCE

Riksbank to get more dollars from US Fed

The Riksbank announced on Wednesday that it was entering into a $10 billion reciprocal currency arrangement with the Federal Reserve Bank in the United States.

The move is designed to increase the Riksbank’s ability to supply Sweden with additional dollars and improve overall liquidity in the financial markets.

“Sweden has been affected by the renewed wave of international financial unrest,” said Riksbank Governor Stefan Ingves in a statement.

“This agreement is a part of our precautionary measures and provides the Riksbank with additional flexibility to provide US dollar liquidity if the need should arise.”

Ingves added that Sweden’s financial stability nevertheless remains “satisfactory” and that the country’s banks are “profitable and solvent”.

Riksbank spokesperson Pernilla Meyersson stressed the move was strictly precautionary.

“We haven’t given out a single krona,” she told the TT news agency, adding that so far Swedish banks haven’t had trouble borrowing in the domestic or international markets.

The central banks of Australia, Denmark, and Norway entered into similar agreements, also known as swap lines, to help each address increasing pressure in short-term funding markets for the US dollar.

“This is a confirmation of what we’ve already seen since everything broke out. There is a lack of dollar liquidity in the financial system around the world. The Riksbank now has a direct line of access to new dollars if a bank needs it. Only the Fed can create new dollars,” said Robert Bergqvist, a head economist at the SEB bank, to the TT news agency.

“The idea is that this will be a short-term, temporary measure and don’t think it will have any real economic consequences.”

The Riksbank’s agreement with the Federal Reserve is set to expire on January 30th, 2009.

ECONOMY

Sweden’s Riksbank raises rates above zero for first time since 2014

Sweden's central bank has increased its key interest rate to 0.25 percent, marking the first time the rate has been above zero for nearly eight years.

Sweden's Riksbank raises rates above zero for first time since 2014

In a press release announcing the move, the bank said that it needed to take action to bring down the current high rate of inflation, which it predicts will average 5.5 percent in 2022, before sinking to 3.3 percent in 2023.

“Inflation has risen to the highest level since the 1990s and is going to stay high for a while. To prevent high inflation taking hold in price and wage developments, the directors have decided to raise interest rates from zero to 0.25 percent,” it said. 

The Riksbank, which is tasked by the government to keep inflation at around two percent, has been caught off-guard by the speed and duration of price rises.

Just a few months ago, in February, it said it expected inflation to be temporary, predicting there was no need to increase rates until 2024.

The last time the key inflation rate was above zero was in the autumn of 2014. 

In the press release, the bank warned that the rate would continue to increase further in the coming years. 

“The prognosis is that the interest rate will be increased in two to three further steps this year, and that it will reach a little under two percent at the end of the three-year prognosis period,” it said. 

According to the bank’s new future scenarios, its key interest rate will reach about 1.18 percent in a year, and 1.57 percent within two years. 

In a further tightening of Sweden’s monetary policy, the bank has also decided to reduce its bond purchases. 

“With this monetary policy we expect inflation rates to decline next year and from 2024 to be close to two percent,” the bank wrote. 

Annika Winsth, the chief economist of Nordea, one of Sweden’s largest banks, said the rate hike was “sensible”. 

“When you look at how inflation is right now and that the Riksbank needs to cool down the economy, it’s good that they’re taking action – the earlier the better. The risk if you wait is that you need to righten even more.” 

She said people in Sweden should be prepared for rates to rise even further. 

“You shouldn’t rule it out in the coming year. Then you’ll have a once percentage point increase which will go straight into fluctuating mortgage rates.” 

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