In addition, the Riksbank entered into swap agreements with the central banks of the United States and the euro area to increase our access to dollars and euros. I will return to this later. In parallel with our liquidity assistance measures, we quickly reorganised our monetary policy. The repo rate was lowered from 4.75 per cent in September 2008 to 0.25 per cent by July 2009. Furthermore, our assessment in July 2009 was that the repo rate would need to be kept at this low level for slightly more than one year. To emphasise this and also to hold down the longer interest rates charged to households and companies, on three occasions the Riksbank offered one-year loans of up to SEK 100 billion at interest rates of 0.25 per cent. All in all, the Riksbank earned SEK 2.3 billion on the measures adopted during the crisis due to the interest rate differential between deposits and loans. Our primary intention was not to earn money through our measures, but, at the same time, it was important not to subsidise the banking system with public funds. (Figure 4)  BIS central bankers’ speeches  5  Figure 4 The repo rate Percentage points  Source: The Riksbank. Other authorities also acted to safeguard stability The Riksbank was not alone in adopting measures to safeguard the stability of the Swedish financial markets. Other Swedish authorities also intervened to counter the effects of the financial crisis.
One risk we emphasised at that point was that of overheating in the Baltic countries. Two of the Swedish banks had large and growing operations in these countries, meaning that a sudden slowdown in the economies of these countries could have led to significant loan losses for the Swedish banks. In particular, we analysed the banks’ resilience towards a sudden economic downturn in the Baltic countries. The stress tests we conducted indicated that the banks had enough capital to cope with such a development. Another risk we emphasised before the crisis was the rapid rates of increase in household indebtedness and in housing prices. One repeated statement was that we did not regard this as being an urgent problem, but that the development was not sustainable in the longer term. At this point, we could observe that housing prices and household indebtedness had increased by about 150 per cent over a ten-year period. At the same time, households’ disposable incomes had only increased by about 50 per cent. There may indeed be reasons for household debt to increase significantly faster than income for a period, but, over the longer term, this is not sustainable. A third risk we emphasised was that the price of risk was very low in a historical perspective. The low risk premiums could indicate that the investors had not received sufficient compensation for the risk they undertook in the purchase of various types of assets.