The path to a monetary policy decision

An independent central bank aiming for a high level of transparency

To the report's start page
An independent central bank aiming for a high level of transparency

The Riksbank’s monetary policy tools

Published: 7 April 2022

At the monetary policy meetings, the Executive Board decides which monetary policy it deems appropriate to stabilise inflation at the target of 2 per cent. When it comes to steering market rates with a short term, the repo rate is the main monetary policy tool. These short-term market rates in turn affect other market rates, such as interest rates with a longer maturity. The Riksbank can also use other tools, including the purchase of various types of financial assets. The low global interest rate situation in recent decades, with policy rates judged by the central banks to be close to their effective lower limits, has made it more of a challenge to meet monetary policy objectives. This is an important reason why the Riksbank and several other central banks have taken other monetary policy measures, such as purchasing various types of financial asset. Such purchases of securities normally push down market rates on longer-maturity bonds. However, the Riksbank's bond purchases have led to interest rates falling even for shorter investment horizons.[10] See Erikson (2021).

When households and companies make their decisions on consumption and investments, an important factor, in addition to current interest rates, is expectations of future interest rates. By communicating how the repo rate and other monetary policy measures are likely to develop, central banks can influence expectations and contribute to predictability in monetary policy. The Riksbank therefore publishes forecasts of the repo rate and asset purchases.[11] Another important reason why the Riksbank started working with forecasts for the repo rate in 2007 was to improve internal work - the effects of various monetary policy options could be more easily analysed and illustrated. The forecasts and the monetary policy balance were more clearly linked than before. See Sveriges Riksbank (2017).