The Riksbank made a loss on large dollar purchases.
The Riksbank is Sweden’s central bank. They must ensure that inflation is low and stable over time, contribute to the financial system being stable and efficient and ensuring that payments can be made. The Riksbank also publishes Sweden’s banknotes and coins.
The Riksbank decided on February 20 on a new strategic allocation for the foreign exchange reserve, which simplified means what it should contain for assets. The foreign exchange reserve should provide a good balance between emergency preparedness, risk and return, as the Riksbank puts it.
A consequence of the decision Was to increase the proportion of dollars in the foreign exchange reserve from 62 percent to 70 percent.
– Swedish banks have a high proportion of their financing in dollars. Both during the financial crisis and during the pandemic, we contributed liquidity support in dollars, says Heidi Elmér, Head of Department for Markets at the Riksbank.
Following the decision on the increase, the Riksbank began to silence dollars. What was needed was about 3 billion. It was only when you reached the 70 percent limit that you went out with a press release about the change.
– We did not want to disturb the market or risk getting worse prices from our counterparts if they know exactly what to do, says Heidi Elmér.
But the timing for dollar purchases was far from ideal. The reason is that after Donald Trump took over as president on January 20 this year, the dollar has lost significantly in value.
On February 20, When the Riksbank decided on the change in the foreign exchange reserve, the dollar stood at SEK 10.73. When the Riksbank announced the change, the dollar had fallen to SEK 10.04. A decline of 6.4 percent.
During this period, the great turbulence had not begun. It was April 2 that Donald Trump’s announced his customs shock that led to great Concerns in the financial markets. It also led to a lot of pressure down on the dollar exchange rate, which is now SEK 9.62.
A decline of just over 10 percent against the level when the Riksbank made the decision to buy dollars. The sharp decline for dollars will mean a loss for the Riksbank.
– There have been quite large currency and market movements in general and it turns on our return in the short term, says Heidi Elmér.
How big the loss will be Not the Riksbank say.
– Exactly what that will be in the end remains to be seen. We publish our results on an annual basis in our annual report, says Heidi Elmér.
Since the Riksbank presented its new allocation, there have been more events that have affected the view of the dollar, US government securities and what happens to the country’s economy.
In connection with the concern about Trump’s customs notice, US long market rates rose significantly. A sign of distrust of the US economy. Something that caused President Trump to temporarily pause the customs plans.
The next worry was that Trump attacked The US Central Bank Federal Reserve Manager Jerome Powell and demanded interest rates. If the central bank’s independence begins to question, it could also push the dollar. Last Sunday urged Donald Trump The Central Bank Manager to lower interest rates.
The Federal Reserve has played an important role in previous financial crises as during the pandemic and the financial crisis.
– We follow this development very closely. So far, we have not chosen to act on the new information that has come, says Heidi Elmér.
– We have high confidence in our colleagues at Fed.
