The Riksbank's monetary policy 28 April 2020 Global synchronised - - PowerPoint PPT Presentation

The Riksbank's monetary policy

28 April 2020

Global synchronised crisis

Measures to dampen the spread of the coronavirus have severely slowed down activity in the global economy

• Restrictions and uncertainty over how long the restrictions will last
• Both production and demand are falling
• The entire world is affected simultaneously

The crisis will worsen if the financial markets do not function

• Uncertainty over the crisis has led to substantial

fluctuations on the financial markets

• More difficult and more expensive to obtain funding
• n financial markets
• Credit tightening risks exacerbating the crisis

Extensive measures to hold down interest rates and facilitate the credit supply

Loans in US dollars

USD 60 billion

The banks can borrow from the Riksbank for onward lending to companies

SEK 500 billion

Purchases of government, mortgage, municipal and and commercial paper

SEK 300 billion

Increased access to safe and liquid assets

Unlimited

• 1

1 2

• 1

1 2 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20

Government bond Mortgage bond Covered bond Municipal bond

The rise in interest rates has slowed down

Yields on 5-year bonds, per cent Sources: Macrobond and the Riksbank

• 90
• 75
• 60
• 45
• 30
• 15

15

• 90
• 75
• 60
• 45
• 30
• 15

15

Daily turnover in the resturant industry

Deep and rapid decline in Swedish economy

Severe slowdown in the economy Clear signs on the labour market

Annual percentage change (daily data) and number per month Sources: Caspeco, Swedish Public Employment Service, Statistics Sweden and the Riksbank

Falling energy prices will contribute to low inflation this year

Annual percentage change and percentage points The contribution of energy prices to the CPIF in the forecast is calculated as the annual percentage change in energy prices multiplied by their current weight in the CPIF. Sources: Statistics Sweden and the Riksbank

• 30
• 15

15 30

• 5.0
• 2.5

0.0 2.5 5.0 17 18 19 20

Internet prices on fruit and vegetables (left scale) Price on gasoline (right scale)

The crisis can affect inflation in different ways

• Inflation statistics particularly uncertain now
• Disruptions to production and deliveries can lead

to unexpected price movements in the short term

• Demand lower, but also supply

Annual percentage change. Internet data refers to prices of fruit and vegetables that can be bough online and is average of daily price observations up until 21

• April. Price on gasoline is average of daily price
• bservations up until 27 April.

Sources: Macrobond and the Riksbank

Exceedingly uncertain situation

Economic developments depend on a number of factors that are genuinely uncertain

• How long will society be limited by measures to dampen the spread of the virus?
• How will households and companies act?
• How are the spread and recovery doing abroad?

5 6 7 8 9 10 11 12 5 6 7 8 9 10 11 12 06 09 12 15 18 21

Unemployment Scenario A Unemployment Scenario B Unemployment MPR February

70 80 90 100 110 70 80 90 100 110 06 09 12 15 18 21

GDP Scenario A GDP Scenario B GDP MPR February

Major uncertainty regarding how deep and prolonged the economic decline will be

Large fall in Swedish GDP this year Rapidly deteriorated labour market

Sources: Statistics Sweden and the Riksbank Index 2019 Q1=100 and percentage of labour force

500 1000 1500 2000 2500 3000 500 1000 1500 2000 2500 3000 08 10 12 14 16 18 20

Low interest rates and extensive liquidity support the Swedish economy

Low repo rate Sharp increase in balance sheet

Source: The Riksbank SEK billion and per cent respectively Later this year with maximum use

Important interaction between different policy areas

Unprecedented economic policy measures to alleviate the consequences of the pandemic

• Fiscal policy gives targeted support to households and companies
• Monetary policy facilitates the credit supply in the economy
• Measures by FI and SNDO increase the banks’ possibilities to grant loans

The Riksbank is ready to do more if and when necessary