File photo for representational purposes
Sweden’s central bank will need more than $7 billion to cover losses stemming from its quantitative easing programs, the governor of the Riksbank told lawmakers on Tuesday.
The bank needs a capital injection of almost 80 billion Swedish kronor ($7.3 billion) just to restore its equity to a basic level, according to preliminary results of an analysis of its financial position, Erik Thedeen told the parliament’s Committee on Finance, according to a statement.
Officials intend to submit a petition to parliament in March 2024 based on Riksbank’s equity and reported results for 2023, including both a request for additional capital and "an opportunity for additional earnings.”
The Riksbank’s recapitalization announcement comes as central banks around the world have seen the assets amassed during a period of low inflation lose value.
The development has led to soul-searching among policymakers as the cost of large asset purchases that had limited success in spurring price increases is becoming clear.
In the euro area, QE-driven losses are most notably felt at Germany’s Bundesbank. Still, officials across the euro area are resisting the need for cash injections, highlighting how such shortfalls are likely to be temporary.
Research released by International Monetary Fund staff in July suggested that such short-run losses shouldn’t necessitate capital injections from governments.
Agustin Carstens, chief of the Bank for International Settlements, spoke out earlier this year to insist that central banks "can and have operated effectively” even with negative equity.
The Riksbank started buying government bonds in 2015 to fuel inflation, and added other asset classes to its purchases to support the economy during the pandemic.
At the peak, in early 2022, it held bonds and treasury bills with a nominal value of close to 1,000 billion kronor ($91 billion). The bank stopped purchases at the end of 2022 and started selling government bonds in April.
