The Riksbank's financial results, and ultimately its equity, are thus affected by the composition of the balance sheet and the pricing of interest rates and exchange rates on the market. It is important to understand how the results and capital may develop in the future, both to be able to make forecasts of the dividends to the treasury and to be able to accurately assess the financial risk picture and the amount of capital that may need to be allocated as a buffer; so-called financial risk provisions.^[16] See Sveriges riksbank (2021a) and Sveriges riksbank (2022d). The Riksbank regularly calculates various scenarios and simulations of how the balance sheet may develop. Below we review one of these scenarios, which illustrates what happens if the current rise in market rates continues.

Assumptions for the scenario

In a scenario for the Riksbank's reported results and capital, we need to assume something about how the Riksbank chooses to change its balance sheet and how financial prices develop going forward. We assume that the bond holdings in Swedish kronor follow the monetary policy decision in April during the rest of 2022 and that no further purchases are made thereafter, which means that the holdings gradually shrink as they mature.^[17] This corresponds to the lower limit of the inner interval in Figure 8 in Sveriges riksbank (2022a, s. 14). The chart does not extend over the entire period of our scenario, but the same assumption applies beyond the chart’s horizon. This should not be seen as the Riksbank's official view of the future holdings but as a technical assumption. Note that the decision regarding asset purchases for the remainder of 2022 from the latest monetary policy meeting, in June, has not been taken into account in this scenario. This means that the interest-bearing debt will also gradually fall, as the banks' deposits in the Riksbank decrease to the same degree.

For financial prices, i.e. interest rates and exchange rates, our assumptions in this scenario are largely based on market pricing in mid-May, see Figures 6-8 in the Appendix.^[18] In some cases, reliable market pricing is not available far into the future. In these cases, we have made simple and arbitrary assumptions beyond the horizon where market pricing is applied. In the scenario, bond rates in both Sweden and the rest of the world will therefore rise, as central banks are expected to raise their policy rates sharply in the coming years. For example, we assume that the Riksbank's policy rate will rise, in accordance with what forward rates were in mid-May, and reach its highest listing of about 2.5 per cent in 2024, and then fall gradually to just over 2 per cent.^[19] Since mid-May, the market pricing of the future Riksbank's policy rate has risen further. Further details of the assumptions are described in the Appendix.

The Riksbank's results and capital according to the scenario

The assumptions presented above give an estimated development for the Riksbank's financial results going forward. The results in turn affect equity.

The Riksbank is expected to make a major loss in 2022

In the scenario, market rates in both Sweden and the rest of the world rise rapidly during 2022. This means that the market value of the bonds in both the foreign exchange reserves and the Swedish portfolio will fall rapidly during the year, which in turn leads to a severely negative result this year, SEK -65 billion, see Figure 4.^[20] Note that the scenario is very uncertain and that we do not know what this year’s result will be until after the turn of the year.

At the same time, the purchase value of large parts of the bond holdings is written down at year-end. This means that higher interest income is recorded during the remaining duration of the bonds. When the policy rate is raised, the Riksbank's interest expenses on deposits in SEK rise, but this is offset by the higher interest income.^[21] An alternative way of describing this is that the higher interest income from write-downs offsets the Riksbank's reported loss, while the rising interest expenses affect the reported results. The results are therefore close to zero or slightly positive during the remaining years.

Figure 4. A scenario for the Riksbank's reported results SEK billion

Note. Broken bars represent the scenario.
Source: The Riksbank

Equity falls to about zero

For a long period, the Riksbank has had a reported equity of between SEK 50 and SEK 80 billion, see Figure 5. In the scenario, the large loss hits equity, which falls to a level around zero. Although the results turn positive a few years ahead in the scenario, it takes more than a decade for the Riksbank to rebuild its equity with its own profits.

If we assume that the proposal for a new Sveriges Riksbank Act takes effect from the 2023 accounting year, the rules for profit dividends from the Riksbank to the treasury will change (see the article). In this scenario, there is no scope for such dividends during the current period.^[22] Even with the dividend principle used in the current Sveriges Riksbank Act, it can be expected that dividends will not be available for most of the scenario. Instead, it may be appropriate to apply the new act's rule on recapitalisation from the State to the Riksbank (see the special article).

Figure 5. A scenario for the Riksbank's capital SEK billion