The Riksbank's losses do not reflect the socio-economic results
“The asset purchases made by the Riksbank during the most acute phase of the pandemic contributed to a rapid recovery of the economy and to the avoidance of a prolonged recession. The value of this was considerable.” These comments were made by Deputy Governor Martin Flodén when he spoke today about his thoughts on the effects of the Riksbank's asset purchases, at a lunch meeting arranged by Handelsbanken.
Date: 14/12/2022 12:00
Speaker: Deputy Governor Martin Flodén
Place: Handelsbanken
Both positive and negative effects
Mr Flodén noted that it is difficult, or perhaps impossible, to assess the broad impact of the Riksbank's asset purchases over the years. The effects have been both positive and negative. There are no clear signs that pre-pandemic purchases reduced household and corporate funding costs, but they strengthened confidence in the inflation target.
The Riksbank’s purchases during the coronavirus crisis helped the financial markets to function and supported economic activity and employment. “But I find it difficult to see the value of later increasing and prolonging the asset purchases in a situation where the economy was recovering rapidly and the financial markets were functioning again,” said Mr Flodén. He also noted that the benefits of asset purchases of course always must be weighed against the risks and problems they may cause, and for example mentioned the risk of moral hazard.
The Riksbank will make a loss going forward
Calculations indicate that the purchases of government bonds may have reduced government borrowing costs by approximately SEK 15 billion during 2015-2022. But interest rates are now rising rapidly, and this means that the value of the assets we have purchased falls. Like many other central banks, the Riksbank will therefore in all probability report a large financial loss for 2022, and our equity may become negative as a result. "This may lead to the Riksbank having to request capital injections from the Riksdag. There is a risk that this may affect the Riksbank's financial independence in the future. Another risk is that market participants will begin to expect the Riksbank to enter in as a buyer in tough times,” concluded Mr Flodén.