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Sweden’s Riksbank’s move towards FX tools shows signs of economic weakness

Riksbank is now concentrating on FX because it is worried that the non-FX tools are not much efficient in raising the credit multiplier and are leading funds towards low yield investments resulting in real estate and capital market disturbance.

Non-FX policy option consists of increasing buying SEK denominated assets, lowering the deposit rate below the current reading of -0.35%, or the central bank lending directly to firms sidestepping commercial banks.

"The Riksbank's apparent shift away from using domestically focused tools is a sign of economic weakness not of strength", says Societe Generale.

Riksbank's intervention might be seen as a chance to purchase cheap SEK on a dip by the investors. At present, the balance sheet of the Swedish central bank is at a moderate 15% of the GDP, much lower than the levels of other central banks.

 

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