Swedish central bank launches $ 51 billion loan program as virus worries rise
STOCKHOLM (Reuters) – Sweden’s central bank said on Friday it would lend up to 500 billion crowns ($ 51 billion) to Swedish companies through banks, boosting credit flows amid the coronavirus outbreak is wreaking havoc on global financial markets.
The move follows emergency cuts by the US Federal Reserve, the Bank of England and the Central Bank of Norway. The European Central Bank announced a massive stimulus package this week, but stopped before cutting rates.
The Riksbank said the loans – equivalent to around 10 percent of gross domestic product – would be made at its repo rate, currently zero percent, with a two-year maturity.
“Our job here is to make sure there is money in the system so that people can buy things and thus keep the economy going,” Governor Stefan Ingves told reporters.
Ingves said the Riksbank was ready to do more if needed with the entire central bank arsenal available, including increasing liquidity and buying bonds of different types, including mortgage-backed bonds. .
“We could also, if necessary, do currency interventions, and of course, we can also lower the reverse repo rate, if we see that this is an appropriate measure.”
He said, however, that a rate cut was not necessary now.
“Zero is already a low rate … and 500 billion free money is, in our opinion, more effective in the current situation than making small changes in the interest rate.”
Policymakers around the world are struggling to find the right tools to tackle the effects of the coronavirus, which has forced massive shutdowns in different industries, disrupted supply chains and forced millions of people to stay at home.
With monetary policy already very accommodative in many countries – like Sweden – central bankers have called on governments to do more to tackle the slowdown.
The Swedish government announced a package of emergency measures on Wednesday and said it was ready to do more.
Swedbank economist Knut Hallberg welcomed the central bank’s move and said he expected further measures.
“I expect the Riksbank later to expand its quantitative easing program and buy more bonds… but I think the Riksbank will try to avoid a rate cut,” he said.
The Riksbank, which kept its policy rate unchanged at zero in February after ending nearly five years of negative rates at the end of 2019, has expressed concern about ultra-low rates for long periods of time.
In neighboring Norway, the central bank on Friday lowered its key rate to 1.0% from 1.5% and offered extraordinary loans to the banking sector.
Also on Friday, the Swedish Financial Supervisory Authority (FSA) said that while it had not seen any direct effect from the coronavirus on financial markets, it had lowered banks’ countercyclical capital buffers to allow them to maintain l ‘credit offer.
He also warned banks not to use the extra cash to boost shareholder returns.
“This is money meant to cushion the negative effects of the coronavirus on the Swedish economy,” FSA chief executive Eric Thedeen said. “We at the FSA will therefore take very seriously if the banks used this capital injection to increase their dividends. “
The European Central Bank rolled out a modest stimulus package on Thursday, offering a range of liquidity facilities for companies likely to be hard hit by the coronavirus.
Reporting by Johan Ahlander, Johannes Hellstrom, Anna Ringstrom and Colm Fulton; Editing by David Evans, John Stonestreet and Nick Macfie