Total turnover on the foreign exchange market was 162 billion kronur in 1997, and had doubled since 1996. In addition, the participation of the Central Bank in foreign exchange market transactions fell from 82 percent of turnover in 1996 to 37 percent in 1997. So far this year turnover has continued to increase and the share of the Central Bank has declined to 13.2 percent. Average daily turnover has been about 2 billion kronur this year. Daily fluctuations in the exchange rate increased as a result of last year’s change, but not much when compared to what is common among other countries. Since mid-1993, or for almost 5 years, the exchange rate of the krona has never deviated more than 2.1 percent from the central rate. Yields on Domestic Markets Money market yields declined in the course of the year until the Central Bank raised its rates in November after which they rose. Yields on 3-month Treasury bills rose to 7.22 percent where they stood at year-end. A low Treasury borrowing requirement at times caused a shortage of Treasury bills. Demand for Treasury bills was also boosted because of increased interest in them for liquidity management. Yields on indexed bonds changed little during the first half of 1997 but during the second half the yield on government bonds and housing bonds fell sharply, albeit unevenly. This decline was partly the result of the low Treasury borrowing requirement. The yield on non-indexed government bonds also declined sharply in 1997, although also unevenly, to 8.3 percent at year-end.
A new overnight facility for credit institutions subject to reserve requirements was established at the Central Bank. Collateral for overnight loans will be provided by government guaranteed securities held by the credit institutions. The next step in these changes will take place on April 1 when new rules governing reserve requirements will take effect. The reserve base will be widened to include the foreign borrowing of credit institutions while the reserve requirement ratio will be lowered as the change is intended to be broadly neutral with respect to required deposits, thus making the change neutral from a monetary policy perspective. The reserve requirement ratio will be 4 percent on obligations under 1 year to maturity but 1.5 percent on obligations tied for longer than 1 year. Also, the reserve requirement will cover more institutions than before, and only institutions subject to reserve requirements will have access to facilities at the Central Bank. It will be possible to meet the reserve requirement more flexibly than has been the case. Indexation of required deposits will be abolished but the interest rate on them will initially be set on the basis of prevailing yields. BIS Review 42/1998  -5-  The last step in these changes will be taken on May 21 when the first calculations based on the new rules concerning reserve requirements will be done. At the same time, the so-called discount quota, which is a facility that the Central Bank has offered to deposit banks, will be abolished.