Presentation of monetary policy decisions
When the Executive Board has taken a decision on the Riksbank’s policy rate, this decision has to be put into practice. Its aim is to steer market rates, which in turn influence other interest rates in the economy and thereby ultimately economic activity and inflation.
How does the Riksbank control market rates?
The very shortest market rate for loans from today until the next banking day, the so-called overnight rate, acts as an anchor for market rates with longer maturities and is the interest rate that is easiest for the Riksbank to control. One operational objective for the Riksbank's Markets Department is therefore for the overnight rate to be close to the level of the repo rate (the policy rate), which the Executive Board sets.
To be able to control the overnight rate, the Riksbank needs to interact with a number of institutions that are active on the overnight market. These institutions make up the Riksbank's monetary policy counterparties. A monetary policy counterparty has access to the Riksbank's monetary policy instruments, the standing facilities and market operations described in the next section. A counterparty that needs to borrow money can do this either on the overnight market or from the Riksbank's standing credit facility. A counterparty with money to invest can lend money on the overnight market or invest the money in the Riksbank's standing deposit facility. As the Riksbank's standing facilities form alternatives to the overnight market, the Riksbank can set limits for the overnight rate by setting the interest rate for the standing facilities. In addition, by setting interest rates for the transactions the Riksbank conducts with the monetary policy counterparties, so-called market operations, the Riksbank can influence where, within these boundaries, the overnight rate will land.