Sweden's Riksbank lends SEK500bn to banks in latest Coronavirus response

Jonathan Boyd
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Sweden's Riksbank lends SEK500bn to banks in latest Coronavirus response

Sweden's Riksbank has announced, following an extraordinary monetary policy meeting, that it will lend up to SEK500bn (€45bn) to companies via banks, to maintain the supply of credit to Swedish companies.

The country's central bank added that it "is prepared to take further measures and to supply necessary liquidity."

It said that the quantity of impact on economic activity and how long that may last is unknown, but that credit supply is "essential" for companies to continue to function.

"If production and demand decline, companies' incomes will fall. This can lead to an increased need to borrow money to weather the turbulence. The financial market unease can also lead to the banks tightening their credit granting. All in all, this risks leading to robust companies being knocked out, which could have long-term negative consequences for production and employment in Sweden. Weaker demand in the economy will probably also mean that inflation falls."

The proposed lending facilitiy would see loans granted at a variable interest rate equivalent to the bank's repo rate, which currently is 0%. Maturity on the loans is set at two years. The bank also stated that it would follow up on the lending of banks in the country to non-financial companies "to ensure that the loans allocated to the banks are used to benefit the companies."

Governor Stefan Ingves said: "The turbulence on the financial markets means that companies that are essentially robust may experience funding difficulties. It is then important that the banks continue to provide these companies with loans so that the credit supply is not threatened. The measures taken in this situation should be regarded as a form of insurance that enables Swedish companies - particularly small and medium-sized enterprises - to feel secure that the credit supply will not fail."

 

Jonathan Boyd
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Jonathan Boyd

Editorial Director of Open Door Media Publishing Ltd, and Editor of InvestmentEurope.