Monetary policy instruments
The Riksbank has two main types of instrument in the operational framework for the implementation of monetary policy - standing facilities and market operations. The main difference between them is that standing facilities are used on the initiative of the monetary policy counterparties, while market operations are offered on the initiative of the Riksbank.
The Riksbank offers its monetary policy counterparties the chance to deposit their excess liquidity with the Riksbank overnight at an interest rate corresponding to the current policy rate with a deduction of 0.10 percentage points. There are no restrictions on the amount that monetary policy counterparties may place in the deposit facility. In practice, the monetary policy counterparties’ excess in the RIX system is automatically converted into deposits in the deposit facility at the end of the day.
The Riksbank also offers its monetary policy counterparties overnight credit in exchange for adequate collateral. The Riksbank offers both the standing lending facility, where the counterparties pay the current policy rate with a supplement of 0.10 percentage points, and the supplementary liquidity facility, where the supplement is instead 0.75 percentage points. There are no restrictions on the amount that monetary policy counterparties may borrow in the facilities as long as they have the necessary collateral for each facility. The management of both lending facilities is also automated. If a monetary policy counterparty has a shortage in the RIX system at the end of the day, this is interpreted as a request to borrow firstly in the standing lending facility and secondly in the supplementary liquidity facility.
To borrow funds from the Riksbank in the lending facility, the counterparty must provide high-quality collateral in the form of government bonds or equivalent. To borrow in the supplementary liquidity facility, all approved collateral can be used. Read more here about which collateral the Riksbank accepts.
The standing deposit facility and the standing lending facility together form a narrow and symmetric corridor. This corridor system means that monetary policy counterparties have an incentive to balance their liquidity among themselves at interest rates that do not deviate by more than 0.10 percentage points from the policy rate. The supplementary liquidity facility is a form of liquidity insurance for the monetary policy counterparties in that it ensures that the monetary policy counterparties always have access to short-term liquidity in exchange for adequate collateral.
Market operations is a collective term for a number of different types of transaction that the Riksbank can carry out to fulfil its monetary policy objectives. All of these aim, in various ways, to signal and anchor interest rate levels in the market or to manage liquidity in the banking system.
Market operations are primarily aimed at conducting monetary policy effectively by signalling which interest rate level should be established in the market in Swedish kronor to attain the inflation target and to manage liquidity within the banking system. Market operations can include everything from collateralised loans at shorter and longer maturities, repos, purchases or issues of securities, loans in foreign currency, and FX swaps. The type of market operation the Riksbank chooses to utilise depends on the needs of the financial markets and the operation’s expected effects on the economy.
Market operations aimed at temporarily affecting the liquidity position of the banking system
- Collateralised loans at shorter and longer maturities
- Repo transactions for both liquidity-providing and liquidity-absorbing purposes
- Issues of discount securities (Riksbank Certificates)
- Fixed deposits
- Currency swaps for both liquidity-providing and liquidity-absorbing purposes
Market operations aimed at permanently affecting the liquidity position of the banking system
- Purchases and sales of securities
- Purchases and sales of foreign currency for Swedish kronor
Current market operations
Read about current market operations that the Riksbank is conducting.
Weekly market operations to balance the liquidity position of the banking system
Normally, the Riksbank’s weekly market operations, which normally have a maturity of one week, aim to balance the banking system’s liquidity position against the Riksbank in the short term. This means that when the banking system has structural excess liquidity, market operations aim to reduce liquidity in the system, and when the banking system has a structural liquidity shortage, market operations aim to increase liquidity in the system. By offering the monetary policy counterparties the opportunity to invest their excess or borrow from the Riksbank in the event of a shortage at an interest rate corresponding to the Riksbank’s policy rate, the Riksbank can signal the interest rate that should be established on the market in Swedish kronor.
Since 2008, the Swedish banking system has had a structural liquidity surplus towards the Riksbank. Consequently, the Riksbank normally issues Riksbank Certificates once a week, usually on Tuesdays, to reduce the liquidity in the banking system at an interest rate equal to the policy rate. Read more about issues of Riksbank Certificates here.
Market operations with a permanent impact on the liquidity position of the banking system
When the Riksbank wishes to permanently influence the liquidity position of the banking system, the market operations may consist of, for example, purchases or sales of different types of securities and purchases or sales of foreign securities against Swedish kronor. These types of market operations can also affect longer-term market rates or the exchange rate of the krona due to a change in the balance between supply and demand for the securities and the krona, respectively. Purchases and sales of securities are conducted only in the secondary market.
During the period from 2015 to 2022, the Riksbank purchased bonds and commercial paper to influence the liquidity position of the banking system and different types of market interest rates in order to influence inflation and to manage the consequences of the coronavirus pandemic in financial markets and the Swedish economy.