MNI POLICY: Riksbank's Ingves-Balance Sheet Key, Krona Less So

Riksbank Governor Stefan Ingves said the Swedish central bank has focussed on balance sheet expansion rather than cutting the policy rate in response to the Covid-19 pandemic and recent krona appreciation was a secondary issue.

Ingves, speaking at a UBS event, did not rule out taking the policy rate, currently at zero, to negative but said that they took the view that the most efficient way to ensure credit was available and effective interest rates low across the economy was via committing to a wide range of asset purchases, including mortgage backed securities and corporate bonds.

On its trade weighted KIX-index the krona has moved from 124.3629 on Sept. 3 2019 to 115.4195 on Sept. 3 2020, a 7.2% rise where a lower number represents a currency appreciation.

"What has been really, really important for us is to ensure that we establish orderly markets domestically and that we ensure that there is ample supply of credit in the Swedish economy," Ingves said.

"From that perspective what has happened with the krona has been secondary but we, of course, take note of the fact that for once the krona has appreciated," he added.

The Riksbank came out of a prolonged period of negative rates only nine months ago.

"When it comes to negative rates there is a limit to how negative you can go," Ingves said, "We certainly know how to do it but our judgement was that our policy mix was more complicated but would produce a better result in terms of keeping rates low in the economy as a whole."

The Riksbank has set out a swathe of lending and purchase measures which will take it deep into next year to complete, including setting aside SEK300 billion for the purchase of government, mortgage and municipal bonds and commercial paper. It announced on Sept. 1 that it would start purchasing corporate bonds this month.

With credit spreads fairly stable Ingves was asked why the Riksbank was continuing to expand asset purchases and to move into corporate bonds. He argued that central banks should be ahead of the game in developing expertise and infrastructure to carry out fresh policies rather than playing catch up when things deteriorate.

Ingves said that in his many years in central banking "Each and every time we talked about and felt that we might have to do this and that in the future the way the future presented itself we also ended up doing it."