Given this, we assessed in July that monetary policy needed to be even more expansionary to ensure that inflation continues to rise towards the target of 2 per cent. We therefore decided to cut the repo rate by 0.1 percentage points to –0.35 per cent, see Figure 5. We also resolved to extend the purchases of government bonds by a further SEK 45 billion until the end of the year, see Figure 6. The purchases decided upon in April are expected to be concluded in September, at which point the new purchases will be initiated. At the end of the year, the Riksbank is expected to have purchased nominal government bonds for a total of SEK 135 billion. This corresponds to around 20 per cent of the outstanding stock of nominal government bonds and around 4 per cent of GDP. 1 If the ECB continues to buy government bonds at the same rate as so far, their purchases at the end of the year will correspond to around 7 per cent of the stock and, there too, to 4 per cent of GDP. The Riksbank has been portrayed as particularly “strict” in relation to other central banks, as we charge a negative interest rate to the banks when they deposit money with us. I would like to emphasise that the Riksbank is not endeavouring to be kind or strict.
It has highlighted the importance of improving our knowledge and assessment of interconnectedness in the financial system, both via the direct links between financial institutions and the indirect ones created in financial markets. Micro-supervisory assessment, institution by institution, typically investigates the vulnerability of each entity, under various assumptions of stress. In contrast, systemic risk assessment investigates the possibility of the whole system, or significant parts of it, being vulnerable, and considers that major risks may emerge from the financial system itself. Such risks may arise, for example, because large parts of the system might have similar exposures, may rely on the same funding sources, can be exposed to rising financial imbalances, may comprehend large similar currency or maturity mismatches inducing liquidity vulnerabilities, and can be exposed to large scale underassessment and mis-pricing of risks. In the assessment of the systemic risk of the financial system itself, the judgement on the robustness of financial infrastructures is particularly important. One important issue in assessing systemic risks is to measure the degree of procyclicality which is embedded in the financial system itself, namely the capacity of the system to amplify fluctuations and to produce after a certain period of time, excessive booms and busts starting from relatively modest initial shocks, up or down.