speech date : 17 june 2020 speaker : deputy governor henry ohlsson venue : riksbank. se sveriges riksbank se - 103 37 stockholm ( brunkebergstorg 11 ) tel + 46 8 787 00 00 fax + 46 8 21 05 31 registratorn @ riksbank. se www. riksbank. se monetary policy during the economic crisis * the economic crisis the world economy is now experiencing is the deepest for many decades. both demand and supply have declined substantially around the world. economic policy faces major challenges. sweden, which is a small open economy, has been severely affected by the reduced economic activity in the world around us. naturally, we have also been affected by how international economic policy to deal with the crisis has been formulated. i will in this speech highlight three challenges that monetary policy has faced during the spring. these challenges have by no means disappeared, we will continue to deal with them. the first challenge has been that the financial markets function less smoothly during severe economic crises. this has been an important base for the riksbank's monetary policy during the spring. monetary policy aims to attain the inflation target. a second challenge at present is that the inflation statistics are difficult to interpret. for instance, there are no prices for many goods and services because there is quite simply no economic activity on these markets. monetary policy must also be forward looking. under normal circumstances this means that monetary policy is formulated according to forecasts of future economic developments. the third challenge is that we are currently living with genuine uncertainty. who could have imagined in autumn 2019 that spring 2020 would turn out the way it did? * i would like to thank marten lof, who has helped me with this speech. moreover, i have received valuable comments from charlotta edler, mattias erlandsson, rebecka hallerby, peter kaplan and marianne sterner. 1 monetary policy has pushed down market rates during the spring, the riksbank has decided on a number of monetary policy measures. when financial markets do not function as normal, the credit supply in the economy is threatened. here, i wish to highlight four measures that the riksbank has implemented. 1 the first has concerned buying government bonds, mortgage bonds and municipal bonds, as well as commercial paper for a total of sek 300 billion. the riksbank has, secondly, decide to give the banks the opportunity to borrow from the riksbank so they

per cent over the coming year will contribute to bringing inflation back towards the target of 2 per cent a couple of years ahead and contribute to a balanced development in production and employment. however, there is still considerable uncertainty regarding the economic outlook and inflation prospects. conditions for the riksbank ’ s monetary policy steering system how is an interest rate decision put into practice? what actually happens when the executive board decides that the repo rate should be raised, cut or held unchanged? this can best be answered with a description of how our system works. like many other central banks, the riksbank aims its monetary policy at steering the shortest market rate, the overnight rate. this can be done in many different ways. we have a system where we decide the conditions for the banks ’ deposits and loans with the riksbank. the riksbank supplies a payment system, rix, which manages payments in swedish krona. a payment system is an infrastructure that makes it possible to forward payments from one bank to another, and thus payments from households ’ and companies ’ accounts in one bank to the recipient ’ s account in another bank. rix consists of an account system where each of the participating banks has its own account in which payments between the banks are booked. by determining the conditions for the banks ’ deposits in and borrowing from the rix system, the riksbank can affect the overnight rate, that is the interest on overnight loans between the banks. deposit and lending rates set the limits for the overnight rate when the payment system closes for the day and trade between the banks in the overnight market has been concluded, the banks ’ accounts in rix must be in balance. this means that the banks must finance their deficits or invest their surpluses. the banks have two alternatives for achieving this. they can either balance their respective deficits and surpluses against one another on the overnight market, or they can use the riksbank ’ s deposit and lending facility. the latter means that they can deposit in or borrow from the riksbank overnight at interest rates published in advance. these are known as the deposit and lending rates, which are 0. 75 percentage points below and above the repo rate respectively. this difference creates an incentive for the banks to firstly borrow from and deposit funds with each other at a rate of interest in this so - called interest rate corridor. one could thus say that the deposit and lending rates set the limits for the overnight rate. how does the riksbank ensure