The effects depend, of course, on how the interest rate develops in the long term. What is clear, however, is that the interest rate risk on our balance sheet has increased substantially. The interest rate risk will also be reflected in major fluctuations in the Riksbank’s profit and its dividends to the government. This is due to the practice of market valuation of the assets on the Riksbank’s balance sheet. 15 I mentioned earlier that the forecast for the dividend-qualifying income for 2015 and 2016 has been transformed from a loss of SEK 14 billion into a profit of SEK 13 billion over the last year or so. A major part of this improvement can be explained by the increase in the market value of the bond portfolio due to interest rates being lower than expected. A back-of-the-envelope calculation shows how interest rate changes now have a considerable impact on the Riksbank’s profits. The bond portfolio has a market value of just under SEK 300 billion and an average maturity of five years. The value of the bonds then increases by about SEK 15 billion if interest rates suddenly fall by one  15 The Riksbank’s dividend-qualifying profit is calculated as the Riksbank’s profit adjusted for changes in the price  of gold and in exchange rates. Changed market prices of Swedish bond holdings hence have an immediate effect on the dividend-qualifying profit. 8 [12]  percentage point on all maturities.
These calculations indicate that the bond purchases and other unconventional monetary policy in recent years have reduced the government’s borrowing costs quite considerably, compared to a monetary policy that had not kept interest rates down and avoided excessively low inflation in the same way. But the calculations should be taken with a large pinch of salt as they take a very narrow perspective on government finances. They ignore, for example, the fact that the government has other assets and liabilities, as well as other commitments, that are also affected by the development of nominal and real interest rates. The calculations also ignore the fact that bond purchases also stimulate GDP growth and employment in the short term and that by strengthening confidence in the inflation target, also contribute to healthy, long -term growth. This benefits Swedish households and strengthens public finances by boosting tax revenues and reducing expenditure. The Riksbank’s finances are strong but sensitive to interest rate changes, and dividends will be lower Concern has sometimes been expressed over the fact that bond purchases are expensive and lead to losses for the Riksbank. 19 This concern is hardly unwarranted, even though it is not certain that the purchases actually do lead to losses. The Riksbank’s balance sheet, profit and equity are now being affected more by interest rate adjustments than before purchases began. Dividends will therefore fluctuate considerably more year on year in the future than they have done in recent decades.