March 16, 2020 / 7:57 PM / 17 days ago

UPDATE 1-Swedish c.bank expands virus support with loans, $30 bln bond buys

(Adds details, further c.bank comment)

STOCKHOLM, March 16 (Reuters) - Sweden’s central bank said on Monday it would buy securities for up to an additional 300 billion Swedish crowns ($31 bln) this year to facilitate credit supply and mitigate the downturn in the economy caused by the coronavirus.

Last Friday, the Riksbank said it would lend up to 500 billion crowns ($51 billion) to Swedish companies via banks to shore up credit flows as the epidemic wreaks havoc on financial markets.

“Continued turbulence on financial markets means that credit supply in the Swedish economy can rapidly deteriorate,” the central bank said in a statement.

“This could aggravate the downturn in the economy and lead to prolonged negative consequences for output, employment and inflation in Sweden.”

The central bank said it would increase purchases of securities by up to SEK 300 billion this year.

“If necessary, the purchases will include government, municipal and mortgage bonds,” it said.

The Riksbank already holds around 50% of outstanding government debt after a substantial quantitative easing programme launched in 2015.

The package of measures will also see the Riksbank cut the lending rate for overnight loans to banks from 0.75 to 0.20 percentage points above the repo rate, and offer lenders an unlimited amount of money on a weekly basis against collateral at three months’ maturity at a favourable rate.

In addition, the Riksbank will accept a wider range of collateral against loans. This will, among other things, give banks more scope to use mortgage bonds as collateral.

However, the Riksbank did not follow major central banks in cutting its main lending rate, the repo rate, which has stood at 0% since a hike in December last year.

The Riksbank has previously said that it does not see a rate cut as the most effective measure in the current situation.

The central bank said it was ready to do more if needed.

“All the Riksbank’s tools can be put to use,” it said. “Purchases of bonds issued by non-financial corporations may also be considered.”

With monetary policy already ultra-loose in many countries, many central bankers have urged governments to do more to fight the downturn.

Sweden launched a 300 billion crown package of measures on Monday to help companies weather the current storm.

It had already announced extra cash for local authorities to meet the extra costs of healthcare during the crisis. ($1 = 9.7323 Swedish crowns) (Reporting by Gwladys Fouche, Jacob Gronholt-Pedersen, Johan Ahlander and Simon Johnson; Editing by Kevin Liffey)

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