Sweden's central bank, the Riksbank, is set to request an additional capital of approximately 80 billion Swedish kronor ($7.3 billion) from parliament in March 2024. This move is aimed at offsetting losses incurred from its quantitative easing programs, as revealed by Governor Erik Thedeen.
This development comes amidst a global reevaluation of the efficacy of large asset purchases by central banks, as they grapple with asset depreciation due to persistently low inflation rates. Germany's Bundesbank has been highlighted as a notable case within this context.
Despite these challenges, Euro area officials have expressed resistance towards cash injections, suggesting that the current shortfalls are temporary. Agustin Carstens of the Bank for International Settlements (BIS) and the International Monetary Fund (IMF) have argued that short-term losses do not necessitate government capital injections. They maintain that central banks can operate efficiently even with negative equity.
The Riksbank's journey into quantitative easing began in 2015 when it started buying government bonds to stimulate inflation. The bank expanded its asset purchases during the pandemic to include treasury bills. By early 2022, it held nearly 1,000 billion kronor ($91 billion) in assets. However, it ceased purchases by the end of 2022 and began selling government bonds in April of the same year.
This strategy resulted in significant losses for the bank. Its equity plummeted to a negative 18 billion kronor following an 81 billion kronor loss in FY2022. The forthcoming request for additional capital and earning opportunities is part of the central bank's efforts to recover from these setbacks.
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