Not only is the federal funds rate trading close to the middle of the new 25 to 50 basis point target range, but the entire complex of money market rates, such as LIBOR deposits and GCF repo, has also risen as well. Moreover, apart from a temporary spike in usage around year end, which was expected, the usage of the overnight, fixed rate reverse repo facility has fallen back to levels similar to what we saw during the testing phase. In recent days, usage has averaged less than $ billion per day. Thus, the facility has been absorbing only a small fraction of the $ trillion of excess reserves in the banking system. This demonstrates that to firm interest rates, we don’t necessarily have to drain reserves or shrink the size of our balance sheet. We are very pleased by how well our tools are working, and this has reinforced our confidence that they will support the policy normalization process going forward. This is what we expected given our extensive testing, but there are always uncertainties that only can be resolved by actually getting underway. For example, there was some residual uncertainty about how important a factor the zero lower bound of interest rates had been in supporting the federal funds rate and other money market rates. This uncertainty now has been at least partially resolved. Even as we have moved away from the zero lower bound, the relative yield relationships we saw before December’s federal funds rate hike have persisted.
On the asset side it is a question of changes in the gold and foreign currency reserve linked to the sale or purchase of foreign currencies. Such interventions are very rare and usually affected by our own decisions. Other items in the Riksbank’s balance sheet only show small and predictable changes. The total of the estimated changes in the balance sheet corresponds to how much  4  BIS Review 51/2008  the bank system’s borrowing requirement is expected to change over the coming week. Compared with many other countries, it is easy to make forecasts of the Swedish bank system’s borrowing or investment requirement. This is partly because the government transactions no longer go via the Riksbank, and there is very seldom a need to make currency interventions when one has a floating exchange rate. In a second stage, the actual loan transaction is carried out by means of what is known as a repo. The monetary policy repo means that the bank system borrows money from the Riksbank against collateral, with an agreement to “repurchase” a week later. When the repo matures, the banks pay interest on the past week’s loans, that is the repo rate. At the same time a new repo is carried out. The conditions for the repo are normally announced every Tuesday and the repo runs from Wednesday to Wednesday.