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Monetary policy in the coronavirus crisis

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Monetary policy in the coronavirus crisis

New measures and closer cooperation between different departments at the Riksbank

Published: 7 April 2022

Short preparations and quick decisions

The extensive financial unrest and the rapidly deteriorating prospects for Swedish companies that arose in connection with the start of the pandemic prompted the Riksbank to quickly activate its crisis management. In February 2020, inter-departmental groups were created and the overall synchronisation took place through the crisis management group. APP coordinated the intensive work of most groups of staff from different departments with regard to formulating and dimensioning various proposals for action. The groups' proposals were presented and discussed in close cooperation with the Executive Board – during one period, two consultation meetings were held on a daily basis. Extraordinary monetary policy meetings were held, during one period as often as every week, at which decisions were taken which in some cases posed major challenges in terms of both formulation and implementation.[28] During the first most acute phase of the crisis, several monetary policy decisions were made per week, either at extraordinary meetings or per capsulam. All in all, the crisis management meant that the Riksbank's decision-making processes developed even closer cooperation between the Monetary Policy Department, the Financial Stability Department, the Markets Department and also the Payments Department.

During the coronavirus crisis, the Riksbank decided on a number of different measures, some of which were previously untried, to help companies and households to cope with the period of lower demand and great uncertainty over economic prospects. For example, the Riksbank implemented various measures to ensure that banks, companies and households could obtain funding, but also to ensure that the Riksbank’s zero interest rate would have full impact on the interest rates paid by companies and households on their loans. In view of the nature of the crisis and the great uncertainty surrounding the development of the pandemic, several of the measures were designed to provide insurance against a worse scenario with a deeper and more prolonged recession.

The measures included various forms of liquidity support for the banking sector, but like many other central banks, the Riksbank also purchased financial assets to a greater extent than before, to meet the challenges of the crisis. The Riksbank began to conduct operations in more markets than before. Prior to the pandemic, the Riksbank's asset purchases consisted of nominal and real government bonds. Now they were also extended to include municipal bonds, commercial paper, corporate bonds, covered bonds and treasury bills. To quickly build up the necessary knowledge of the corporate bond market, which was a new arena for the Riksbank, an external company was also engaged. The Riksbank decided and introduced many of the measures in a very short period of time, and both the financial framework and the conditions for the measures in several cases needed to be adjusted after they were first announced.