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.

To be able to influence the overnight rate to bring it close to the policy 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 the banks’ deposits and lending overnight in the Riksbank, 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. 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 policy rate. Banks can also lend from or deposit money at the Riksbank on a weekly basis.

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Updated 07/06/2023