Riksbank: crisis ‘clearly affecting’ Sweden

The Riksbank’s top two officials have publicly acknowledged that the global financial crisis has arrived in Sweden as they announced an additional lending facility to help ease up tight credit markets.

Riksbank: crisis 'clearly affecting' Sweden

“Sweden has so far been spared the worst. But now the financial markets in Sweden are also clearly affected by the uncertainty and lack of confidence, which thus also affects the Swedish banks and other financial agents,” said First Deputy Governor Irma Rosenberg in a speech at Statistics Sweden on Thursday.

Rosenberg’s concern was echoed by Riksbank head Stefan Ingves in a separate statement detailing the Riksbank 60 billion kronor ($8.5 billion) credit facility.

“The international financial turbulence is now clearly affecting the financial markets in Sweden, Swedish banks and other financial market participants,” said Ingves.

While Sweden’s banks remain well-capitalized and have limited loan losses thus far, Ingves warned that problems in long-term credit markets could cause problems for Swedish banks, companies, and households.

“The Riksbank is now taking measures to facilitate the supply of credit. If the situation were to deteriorate, the Riksbank and other government agencies are well-prepared to deal with the problems,” he said.

The new lending facility totaling 60 billion kronor will be made available through an October 6th auction. An additional auction is planned for October 27th.


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.”