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FINANCIAL CRISIS

Riksbank throws banks another lifeline

The Riksbank announced on Monday that it was increasing the credit it is making available to Sweden’s banks from 60 billion kronor ($8.3 billion) to 100 billion kronor.

Riksbank throws banks another lifeline

An additional 100 billion kronor will be made available for auction on Wednesday, October 8th.

The additional injection brings the total liquidity supplied by the Riksbank to 354 billion kronor since the start of the current global financial turbulence.

“The Riksbank is now taking swift measures to facilitate the credit supply for the Swedish banks,” said Riksbank Governor Stephan Ingves.

“Together with the actions taken by the Swedish National Debt Office (Riksgälden), liquidity of more than 500 billion kronor is being supplied in different ways. The Riksbank is prepared to provide the liquidity necessary to safeguard financial stability and ensure the smooth functioning of the financial markets in Sweden.”

Ingves again emphasized that the current upheaval in global financial markets was “clearly affecting” Sweden and warned of the continued risk of “negative effects” on the credit supply to banks, companies, and individuals.

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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