If you wanted “more cowbell” from central banks, you got it on Monday, when the Riksbank stepped up to the plate with a new package of measures, following global peers who pulled out all the stops only to see equities tumble further across locales.
Just one trading day after saying it would lend SEK500 billion to companies via new, two-year loans through banks with a variable rate equivalent to the repo rate (so, 0%), the Riksbank expanded QE for up to an additional SEK300 billion for 2020.
“The corona pandemic will inevitably have clearly negative effects on economic activity, although it is too early to say how serious these consequences will be and how long they will last”, the bank said in a statement. “In all likelihood, the developments will also affect credit supply in the economy”.
In addition to expanding QE, the bank will cut the lending rate for overnight loans to banks from 0.75 to 0.20 percentage points above the repo rate, which is unchanged at zero. The Riksbank exited negative rates in December to much fanfare, and will likely be reluctant to venture back into NIRP even as Sweden recognizes the need to take further action.
In order to further facilitate the flow of credit, the Riksbank will let banks borrow an unlimited amount on a weekly basis against collateral at three months’ maturity. The rate will be 0.20 percentage points above the repo rate which, again, is zero. Additionally, it sounds like the bank will relax collateral rules in connection with tapping the cheap funding.
“Economic developments and the situation on financial markets, both in Sweden and other countries, are now deteriorating very rapidly”, the bank cautioned, on the way to saying that in light of the dire situation, the Riksbank “is prepared to take further measures and supply the necessary liquidity even between the ordinary monetary policy meetings”. They also hinted at corporate bond purchases.
This comes on the heels of the Fed’s “all in” Sunday gambit (which included the second emergency cut in three weeks), the Norges bank’s Friday rate cut, the BOK’s Monday cut, the BOC’s emergency cut (the second rate cut this month), New Zealand’s massive move, the RBA’s QE hint, and the BoJ’s expanded asset purchases.
Again, the ammo is all but spent, folks. Fiscal policy absolutely has to take the reins.