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§3. Monetary policy review

Carl-Fredrik Pettersson from the Markets Department informed the meeting of developments on
the financial markets. Significant upturns have occurred on stock markets in Sweden, the euro
area and the United States over the last month, partly as a result of major fiscal and monetary
policy measures. However, increasing unease on oil markets caused the stock markets to turn
downwards today. For example, the price of WTI oil for delivery in May fell to around -40
USD/barrel yesterday. Several commodity currencies such as the Norwegian krone, the Russian
rouble and the Canadian dollar have depreciated significantly in the past two days.

Long government bond yields in Sweden, core European countries and the United States are
stable, but some stress in peripheral euro countries can be noted, especially in Italy. The Italian
10-year government bond yield is around 2 per cent today, which is 2.5 percentage points higher
than its German equivalent. The conflict particularly between Italy and other European countries
about how to fund the costs of the corona pandemic remains unresolved. Added to this, support
for the EU has weakened in Italy and the sustainability of the monetary union has once again
been called into question on the markets. Furthermore, on Friday 24 April, S&P Global will make
a new assessment of Italy’s credit rating, which is currently only two steps above junk status.

In conjunction with the publication of the Monetary Policy Report next week, the Riksbank is
expected to communicate looser monetary policy. Pricing on the market (RIBA contracts)
indicates an approximate 50-percent probability of a repo rate cut. SEB’s investor survey among
participants on the fixed-income and foreign exchange markets shows that four out of five think
that the repo-rate path will be lowered. The Swedish krona has been relatively stable this past
month, given the high degree of uncertainty.

Mattias Erlandsson, Deputy Head of the Monetary Policy Department, informed the meeting
about general economic developments. By and large, the economies of Europe and the United
States continue to be shut down. The spread of infection has slowed in a number of areas, and in
some places, restrictions are being eased in small steps. The economic consequences of the
shutdowns around the world will be very considerable, with substantial falls in GDP. There is still
major uncertainty, however, about how deep and prolonged the downturn may be. The Swedish
economy is being hit very hard. So far, in March and April, about 60,000 employees have been
laid off, 260,000 have been furloughed and 95,000 have registered as unemployed at the
Swedish Public Employment Service. The Riksbank’s contacts with companies in the Business
Survey indicated last week a continued weak position with signs of a deterioration in demand
beginning to spread in the economy.

Mattias Erlandsson presented a basis for the Executive Board’s decision to initiate purchases of
municipal bonds, within the framework of the previously adopted programme on 16 March that
the Riksbank shall purchase bonds for up to SEK 300 billion during the period March–December
3 [3]
2020. The proposal involves the Riksbank purchasing bonds issued by Swedish municipalities and
regions and by Kommuninvest i Sverige AB for a total nominal amount of SEK 15 billion between
27 April and 30 June.

The Risk Division’s assessment is that the overall risks associated with the programme for
municipal bond purchases for monetary policy purposes have been dealt with. Purchases of
municipal bonds contribute in particular to increased interest-rate risk and operational risk,
although both these risks are considered manageable for the Riksbank.

§4. Monetary policy decision

The Executive Board decided
 on monetary policy measures and that these measures be applied in accordance with
what is stated in Annex A to the minutes Municipal bond purchases for monetary policy
 to publish the monetary policy decision with the motivation for it in a press release on
Wednesday, 22 April 2020, at 09.30 hours.
 to publish the minutes from today’s meeting on Monday 4 May 2020 at 09.30 hours.

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