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.
For Treasury securities, when the caps are fully phased in, they will generally only be binding during the middle month of each quarter, when there is typically a spike in maturing Treasuries in the Fed’s portfolio. For agency MBS, as long as long-term interest rates are steady or rising, we expect that the fully-phased-in caps will not be binding. However, if long-term interest rates were to fall sharply—provoking a surge in refinancing and mortgage repayments—the caps would likely bind, limiting the amount of agency MBS that would have to be absorbed by the private market. As currently anticipated, once we start the balance sheet normalization program, we expect it to continue in the background until the FOMC judges that the Fed’s securities holdings are no larger than necessary to implement monetary policy efficiently and effectively. Adjustments to the target range of the federal funds rate will remain the primary tool of monetary policy. However, if economic circumstances were to change during the normalization process in a way that would warrant a sizable reduction in the target range for the federal funds rate, the FOMC would be prepared to resume reinvestment. The program has been designed to be implemented gradually and predictably so that market participants and the U.S. Treasury can anticipate when and at what pace the portfolio is likely to run off over the course of normalization. This should keep expectations more stable and reduce the risk that a sharp shift in expectations could generate undesirably large movements in interest rates and asset prices.