Sweden's Riksbank Joins Normalization Efforts

The focus was on the BOE and ECB today, but little fresh has been revealed by them. One central bank that did do something was Sweden's Riksbank. It indicated that it will no longer be proving 12-month loan to banks. Shorter term duration loans will still be provided. This is not a very big deal, as the ECB and other central banks have already begun a gradual normalization of monetary policy. However, one implication that is noteworthy is that the move would seem to be a indication of the better health of Swedish banks who probably do not need the kind of support that they needed in the recent past.

Loans will still be made for 3 and 6 month tenors, but at slightly higher rates. Three-month money will be had for 30 bp rather than 25 bp and the six-month money for 35 bp rather than 25 bp.

Not that the ECB follows the Riksbank, but Trichet was clear that further guidance to the ECB operations will be provided next month. The issue there is the amount of funds available--currently unlimited--and the rate--currently fixed (though the last 12-month operation was indexed to average repo rate).

In recent days the euro have slipped to the lower end of its 6 month trading range against the Swedish krona, below SEK10.10. The risk averse mood of the market, spurred by the deterioration of the weaker credits in Europe, has weighed on the krona more than today's central bank moves. Initial resistance is seen near SEK10.20, but there is scope towards SEK10.30.