How a monetary policy decision is implemented

When the Executive Board has taken a decision on the policy rate, this decision has to be put into practice. The aim is to influence market rates, which in turn affect other interest rates in the economy and thereby ultimately economic activity and inflation.

The market rate that is easiest for the Riksbank to influence is the “overnight” rate, i.e. the interest rate on loans between banks overnight. The Riksbank wants the overnight rate to be close to the repo rate. 

To be able to influence the overnight rate to bring it close to the repo rate, the Riksbank interacts with banks and other participants on the financial markets. This occurs within the Riksbank’s operational framework for monetary policy.

The monetary policy operational framework has a strong link with the Riksbank’s payment system RIX, which banks use to make payments to one another. By determining the rate that will apply to banks’ deposits and lending in RIX, the Riksbank can influence the overnight rate.

The banks’ payments to one another during the day can lead to some banks having a surplus in their account in RIX at the end of the day, while others have a deficit. The banks then have two options in order to fund their deficits or deposit their surpluses in RIX. They can either balance their surpluses or deficits with each other on the overnight market before the payment system closes, or they need to lend from or deposit money at the Riksbank overnight. The Riksbank can then ensure that this takes place at an interest rate that is close to repo rate. Banks can also lend from or deposit money at the Riksbank on a weekly basis.

Publication on the Riksbank’s operational framework for monetary policy

The publication “The Riksbank’s new operational framework for the implementation of monetary policy” provides a more detailed description of how the monetary policy operational framework works.

Changes in the operational framework for monetary policy

The Riksbank will make changes in the operational framework for monetary policy. This is to make the framework simpler and more flexible.

Updated 13/09/2019

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