Parliament is asked by Sweden’s Riksbank to approve $4 billion to cover bond losses.
STOCKHOLM:After reporting significant losses on its bond portfolio, the central bank of Sweden has requested a capital infusion of 43.7 billion Swedish kronor ($4.05 billion) from lawmakers.
The Riksbank’s equity has turned negative as a result of the sudden increase in interest rates, which has caused a decrease in the value of bonds that the bank bought as part of quantitative easing measures. These losses are primarily unrealized.
If the central bank’s equity drops below a predetermined threshold, it is required by Swedish law to request that Parliament restore it.
Governor Erik Thedeen of the Riksbank stated, “A negative equity does not affect the Riksbank’s ability to conduct monetary policy in the short term.”
“But to maintain confidence in an independent monetary policy in the long term, it is necessary that the Riksbank is financially independent, that is, has sufficient equity and earnings to cover its costs.”
Thedeen stated that although the central bank’s balance sheet is already fast contracting, it is still quite huge, and the outcome for this year would be highly susceptible to fluctuations in interest rates and currency rates. Therefore, there is a chance that further losses could occur and cause the equity of the Riksbank to drop below the base level once more as early as the beginning of 2025, even if equity is recovered in 2024.
Sweden’s low cash usage is another factor impeding its capacity to rebuild equity. Central banks typically benefit financially from their monopoly on the issuance of coins and banknotes, but Swedish consumers are moving more and more toward digital payments.
Thedeen said, “In the long run, the Riksbank must fortify its self-financing to preserve financial independence.”
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