riksbanken Archives • SwedeInternational

24 Oct. – a little thing called the repo rate

houses breathing a sigh of relief
pic: booli.com

The news from the Swedish Central Bank (riksbanken) today was expected, but was still good to know: the repo rate (styrräntan) will remain the same at -0.25 percent.

The central bank has kept the repo rate at extremely, abnormally low levels (like, below zero levels) in an effort to bring up inflation. The extremely, abnormally weak krona has been one result of this policy. In their statement today, the central bank wrote that there are signs of a slowdown after the past several years of a strong economy, which they’re calling returning to a “more normal” level. Inflation hasn’t been as high as they would have liked, they said, but, they don’t expect it to change much in the next year either. So, all in all, they’re not changing the repo rate.

What was good about the decision was that the board on the central bank was unanimous, and this is always good for financial markets. Keeping it at the same rate meant no surprises, nasty or otherwise, and this is always good for financial markets. Financial markets like stability. What was a bit of a surprise though, was that they said they might just raise the rate to zero percent in December, even though the economy is not at all expected to pick up.

The krona went a little bananas in response, but then didn’t close so much differently than it did yesterday.

The repo rate is that rate at which the central bank lends money to the country’s major banks. It also dramatically affects the interest rate that the banks pass on to regular loan-seekers. If the repo rent goes up, you can count on the interest rate on your loan going up. Suddenly higher interest rates can make people get scared and retrench, stores go out of business, people lose jobs, the economy dips or crashes, you get the picture. The repo rate is big news.

Mon. 12/8 – how low can you go?

Would you pay to keep money in a bank? Would you contribute to your bank’s “stability” by paying them to hold your hard-earned kronor? So far, banks have passed on passing on negative interest rates to customers’ regular savings accounts, but rumours have begun to circulate that having to pay a bank to hold on to your savings isn’t as foreign a concept as once thought.

The article on Bloomberg’s website spells it out clearly “Depositors are next as Nordic Banks Buckle Under Negative Rates“. The question is, do the banks dare to make people pay to have an account? Who will be the first to try it, and risk the ire of their customers? Will customers actually accept it?

The Swedish central bank’s Stefan Ingves has stubbornly held on to his idea of negative interest rates, even when even his inner circle is divided on the issue. Previously, it was held that it was good for Sweden’s exports, as the weak krona (due, in many ways, to the negative interest rate) makes Swedish products seem inexpensive. But even business owners have begun to complain, finding that their product is almost working under false pretences, and that it is harder to price against the market. At first, it seemed great, but now, after some time has passed, not so much.

Banks have made money with the negative rates by relying on asset management and other fee-generating products, Bloomberg reports. But that stream might not now be strong enough. The director of the Danish Bankers’ Association is quoted as saying “banks are selling their products below cost price” – something that can’t be kept up. So far, though, only Credit Suisse has said it will impose a cost on its customers – those that have over a million Euro in deposits.

So far so good, for most people, obviously. But only just as long as it stays at that level. As we now appear to be heading into a sort of economic slowdown, and things may get tight, this is not as sure as the expression “like money in the bank” once implied.

Update August 20 – DN.se reports that that Danish bank Jyske is now implementing a negative interest rate for its customers that have over 7.5 million kronor (about 10 million Swedish kronor, or about a million bucks) in the bank (). A customer that has 8 million kronor will pay about 48 thousand kronor to keep their money there.

Tues. 30/7 – it’s the economy

Statistics Sweden (the SCB, Statistiska centralbyrån) released the numbers on the economy this morning. Sweden’s second quarter GDP (BNP, bruttonationalprodukt in Swedish), compared to this time last year was lower than expected, and came in at 1.4%. The Swedish central bank (Riksbanken), whose measures the governnment uses for its work, thought it’d be 1.8%. So that’s not so great but perhaps not a signal to freak completely out.

Sweden’s 2nd quarter GDP wasn’t better than 1st quarter numbers either, unfortunately – it was lower by 0.1%. Again, the Swedish Fed thought (hoped?) differently, namely that it would increase by 0.1% compared to 1st quarter. It seems their algorithms might need to be recalibrated.

No great cause for economic alarm here, just more evidence that the economy isn’t going gangbusters anymore, or likely anytime soon. It seems instead like we’ll be muddling through for a bit – barring a no-deal Brexit, in which case things will become much more unsettled.

Tues. 23/7 – an SOS for the SEK

Although the Swedish Central Bank (Riksbanken) had a darn cheery economic prognosis for Sweden earlier this month, a report from Capital Economics (a pretty huge, international, economic research company) predicts that the krona may sink to a new low by the end of the year – 11 kronor to the Euro. DN.se reports (bit.ly/DNekonomi) that Capital Economics has Swedish household consumption down 1% in May compared to last year – the largest drop in a decade. This bodes ill for the economy as a whole.

So why is the krona so weak? Why doesn’t it buy so much anymore? Why does so much seem so much more expensive? It’s good for people bringing over money, or if you’re a tourist, but it’s not generally good when you have to pay a lot more for things than normal.

Some people think that the krona has simply been overvalued before and this is the new normal (see Handelsbank’s economists on Affärs Världen ). Or, that it’s not really that bad – if you compare it to even smaller currencies. But if you don’t think that way, then there are a bunch of different factors to consider. DN.se’s Carl Johan von Seth had a few ideas a while back ():

Low interest rates. You’ve probably noticed how nobody is getting any interest on the money in their bank account. It’s the same on a country scale. Other countries are simply not buying the krona because they won’t make any money on it, and if no one’s buying, it further weakens the krona. Snow, meet ball.
Trump. Let’s just go ahead and blame him for this too, right? But we can! The dollar is super strong, and every time the Fed even thinks about raising the interest rate to keep things on an even keel, Trump is right there tweeting some really dark shade. The tax reform he implemented is also keeping the dollar strong (and possibly the economy good but that’s another, complicated, blog post). Plus, the trade war he’s engaged in with China makes people (read: economies) nervous, and nervous economies don’t buy weak currencies, like the krona. Especially when it’s known how dependent Sweden is on international trade.
The European Central Bank. The Euro is pretty strong these days, (which also makes the krona look weak), but has an even lower inflation than Sweden. In that comparison, Sweden’s higher inflation is unfavorable.
Sweden’s Minister for Finance, Magdalena Andersson. Some argue that Andersson’s relatively restrictive budgeting and the resulting budget surplus is part of the reason. If she had spent a bit more, maybe the krona would be stronger. (Then again, the budget surplus is a good thing to have if/when the economy weakens. Always an argument.)
The Swedish Financial Supervisory Authority (“Finansinspektion”). The housing market is an acknowledged hot mess, and the Finance inspection’s new demand for paying off one’s mortgage and a higher down payment requirement has had both the desired effect (dampening the housing market) and an unwanted side effect (dampening the housing market). Less building can be good in some ways but also affects Swedish economic growth negatively. Exactly, contributing to a weak krona again.

Congratulations on making it all the way through this blog post. Now go out and spend some money to bring up our economy. Or save the money in your mattress for the worse days to come. No advice here, this is just a blog post.

26 June – The crappy krona

It turns out the weak krona isn’t so popular with businesses after all. SvD writes that only 1 business in 5 thinks it’s helping them, while nearly half of the responding companies say it’s negative for them. Production costs over the years have moved production out of Sweden, which means an increase in imports before exporting again: The weak krona makes these imports expensive. It’s not just people buying fruit at the local ICA that are dismayed by the exchange rate. Will the Swedish Fed notice?