Monetary policy instruments
The Riksbank regularly uses monetary policy instruments to implement its monetary policy in practice. The Riksbank primarily does this via what it calls its operational framework with the assistance of market operations and standing deposit and lending facilities. In addition, the Riksbank can take other measures if necessary.
Standing deposit and lending facilities
To manage the liquidity in the banking system in the short term, the Riksbank offers what are known as standing facilities over night, through which the monetary policy counterparties can make deposits or borrow from the Riksbank against collateral. Monetary policy counterparties can make deposits overnight in the standing deposit facility and borrow unlimited amounts overnight against collateral, either in the Riksbank’s standing loan facility or in the Riksbank’s supplementary liquidity facility.
RIX participants that are credit institutions domiciled or with a branch in Sweden and which are monetary policy counterparties have access to the standing deposit and lending facilities.
Measure on standing deposit and lending facilities
Due to the increased uncertainty on the financial markets caused by the corona pandemic the Riksbank, in spring 2020, decided to cut the interest rate on the lending facility. The measure is aimed at ensuring that the overnight rate on the market for Swedish kronor is close to the policy rate, as well as making it cheaper for the monetary policy counterparties to access overnight credit. The change entails:
- A cut in the interest rate on the lending facility to the policy rate +0.10 percentage points. Read more in the annex to the minutes from the monetary policy meeting held on 30 June 2020.
Market operations are primarily aimed at managing liquidity in the banking system. Market operations can include everything from loans at shorter and longer maturities against collateral, repos, purchases or issues of securities, loans in foreign currency, and foreign exchange 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.
Normally, when the banking system has a surplus of liquidity, market operations are aimed at reducing the liquidity in the system and, when the banking system has a deficit of liquidity, the market operations are aimed at increasing liquidity. Through these operations with short maturities (one week), the monetary policy counterparties get the opportunity to invest their surplus or borrow from the Riksbank in the event of a deficit.
Since 2008, the Swedish banking system has had a surplus. Consequently, the Riksbank issues Riksbank Certificates once a week, normally on Tuesdays, thereby reducing the liquidity in the system. The Riksbank Certificates are offered at an interest rate that is the same as the policy rate.
When necessary, the Riksbank can make monetary policy more expansionary by purchasing securities. The aim of such purchases can be both to bring down the general level of interest rates in the economy and to facilitate the credit supply in the economy. The type of security the Riksbank chooses to purchase depends on several factors such as supply and demand for various securities and the risk with which various securities are associated. For several years, the Riksbank has purchased government bonds with the aim of making monetary policy more expansionary.
Measures taken due to the coronavirus pandemic
In order to facilitate credit supply and mitigate the economic effects of the coronavirus pandemic, the Riksbank has taken a number of measures to keep general interest rates low. The Riksbank has decided to conduct operations in more markets, increase liquidity in SEK and improve access to US dollars for monetary policy counterparties. These measures have included:
- Loans to the banks for onward lending to companies (terminated)
- Monthly market operations at longer maturities in kronor (terminated)
- Loans in US dollars (terminated)
- Purchases of covered bonds (mortgage bonds)
- Purchases of municipal bonds
- Purchases of commercial paper
- Purchases of corporate bonds
- Purchases of treasury bills (The Riksbank has ceased buying treasury bills)
Collateral for credit
When the Riksbank supplies liquidity to the financial system, which is to say provides loans in Swedish kronor or foreign exchange, this must be carried out in such a way that it does not entail the Riksbank risking its capital. The Riksbank therefore has to take over collateral that is sufficiently adequate to prevent this happening. The Riksbank therefore places certain demands for something to be approved as collateral and decides how this collateral is to be valued. Under normal circumstances, these demands and the haircuts applied are fairly high. The terms and conditions for RIX also specify which collateral demands apply to various monetary policy instruments; read more on the page Collateral.
Measure taken due to the coronavirus pandemic
- In March 2020, the Riksbank eased the limit regulations rules applied to on the use of collateral and made it possible for the monetary policy counterparties to use mortgage bonds issued by the counterparties. In September 2021, the Riksbank revoked this decision and as of 3 January 2022, the limit rules on the use of collateral that applied before the pandemic will be reintroduced. Read more in the annexes to the minutes from the monetary policy meetings held on 19 March 2020 and on 20 September 2021.
Conditions for Monetary Policy Instruments
The Riksbank’s various monetary policy instruments are used by the monetary policy counterparties. The conditions for the use of monetary policy instruments are described in the terms and conditions for RIX; read more on the page Conditions and instructions. The terms and conditions for RIX also specify which collateral demands apply to different instruments; read more on the page Collateral.
There are special conditions applying to some monetary policy instruments normally used by the Riksbank. Such special conditions apply to Riksbank Certificates and to the Riksbank’s purchases of government securities.
Special conditions apply to the new measures that the Riksbank has implemented/may implement; read more under each measure.