With the reversal of global developments fueling inflation in the last quarter of 2008, the Central Bank took prompt action to cut interest rates and adopted a pioneer role among emerging markets. The analysis conducted by the CBT indicates that policy rate cuts of a total of 950 basis points have alleviated the severity of excessive volatility in economic activity. The developments since November 2008 in domestic financial markets and falling inflation have confirmed the accuracy of our projections and the policy rate-cut decisions, increasing the confidence in monetary policy. As a consequence of the measures taken and the limited recovery in risk perceptions, the level of market interest rates today is below the pre-global crisis level in both nominal and real terms. Having neutral interest rates at lower levels during economic recessions is an expected development in well-functioning economies, but it has never been experienced in Turkey before. This development should be perceived as an indicator of the normalization of the Turkish economy. Despite the marked deterioration in economic activity in Turkey, there were at least three factors that prevented an outright depression. These factors were the soundness of the financial system, low levels of Turkish household indebtedness, and an assertive monetary policy stance, which aimed at mitigating the impact of the crisis on the domestic economy. Reviewing these factors, albeit briefly, would allow a better understanding of Turkey’s economic prospects. The Turkish financial system proved to be resilient to the financial crisis relative to many other emerging economies.

Another issue is how to handle companies with high carbon emissions who are actively aiming to transition towards lower emissions. These are questions that have begun to be analysed and where the Riksbank can contribute knowledge and analysis. The Riksbank’s balance sheet The assets on the Riksbank’s balance sheet are valued at around SEK 900 billion. The two largest items on the asset side are the foreign exchange reserves, which total around SEK 420 billion, and the policy portfolio, which contains Swedish government bonds totalling almost SEK 380 billion.30 It is here, with regard to the balance sheet, where we have to ask the really difficult questions about the role of central banks in climate adaptation. Should green bonds be included when the Riksbank buys bonds for monetary policy purposes? How sustainable are the bonds in central bank FX reserves? Can the Riksbank consider climate-related risks in the collateral it requires from counterparties in monetary policy transactions?31  Sustainability perspective in management of the FX reserves Since 1 January 2019, the Riksbank has had a new financial risk and investment policy. The policy states, among other things, that consideration shall be given to sustainability in the choice of assets in the FX reserves, in addition to other requirements laid down in the Riksbank’s mandate. The Riksbank’s gold and FX reserves are managed so that there is preparedness to supply the financial system with liquidity in foreign currency and to intervene on the FX market for monetary and foreign exchange policy purposes.