The Riksbank’s activities 2016 - continued expansionary monetary policy

Growth in the Swedish economy was relatively good despite only moderate growth abroad. An improved situation on the labour market, domestic consumption and housing investment contributed to this development. Inflation, measured as the change in the consumer price index (CPI), amounted to 1.0 per cent as an annual average. Excluding the direct effect of the Riksbank's own cuts in the repo rate, CPIF inflation averaged 1.4 per cent.

"The Riksbank is currently conducting an unusual monetary policy. The repo rate, which was cut below zero for the first time in 2015, was cut further during the year and at the end of 2016 was –0.50 per cent. The Riksbank also continued purchasing government bonds. At the end of 2016, the Riksbank had decided on purchases of government bonds in a nominal value of SEK 275 billion. The expansionary monetary policy has been a contributory factor in growth in Sweden maintaining a good level despite the weak developments abroad. During 2016, both CPI and CPIF inflation rose, and inflation expectations approached 2 per cent," notes Governor Stefan Ingves in his comments on the Riksbank's Annual Report for 2016 (only in Swedish).

Among other things, the Annual Report presents a review of the Riksbank's work on analysing risks that could build up in the financial system and threaten its stability. The Swedish financial system functioned well over the year, but the Riksbank considered that there were vulnerabilities in the structure of the Swedish banking system and risks linked to the low interest rates. In a situation with low interest rates over a long time, there is a risk that households and companies will make decisions based on an unrealistic picture of the long-term situation for interest rates. There is then a risk of inflated asset prices that may eventually need to be adjusted. The Riksbank highlighted the risks of this and raised the need for the Riksdag, the Government and other authorities to introduce various measures to restrain in particular the development of household indebtedness. The Riksbank also gives an account of the second stage in the changeover of Sweden's banknotes and coins. The older 20-, 50- and 1,000-krona banknotes became invalid after 30 June. At the end of the year, 84 per cent of the value of the older 20-, 50- and 1,000-krona banknotes had been handed in to the Riksbank. In October 2016, the new 100-krona and 500-krona banknotes, together with new 1, 2 and 5-krona coins were introduced.

The balance sheet total increased over the year by SEK 181.4 billion, to SEK 844.8 billion, primarily due to the Riksbank's purchases of Swedish government bonds with the aim of making monetary policy more expansionary. The Riksbank's net income increased by SEK 5.0 billion to SEK 7.0 billion. The increase was mainly due to lower write-downs on the Riksbank's financial assets. The market value of the gold and foreign currency reserves increased in 2016, from SEK 465.0 billion to SEK 513.7 billion. The Riksbank observes that the bond purchases have had a positive effect on the Riksbank's finances, but also that the Riksbank's interest-rate forecasts indicate future losses. It is assessed that the Riksbank's financial position, despite the higher risks, is still satisfactory.

The Riksbank's Annual Report for 2016 can be read as a parliamentary document in Swedish via the link below. English and Swedish versions of the Annual Report, in the Riksbank's standard layout, will be published at the end of March 2017, when it will be possible to download the report or order copies through this website.