Swedish central bank launches $51 billion loan package as virus worries mount

STOCKHOLM (Reuters) - Sweden’s central bank said on Friday it would lend up to 500 billion crowns ($51 billion) to Swedish companies via banks, moving to shore up credit flows as the coronavirus epidemic wreaks havoc on global financial markets.

The move follows emergency cuts by the Federal Reserve in the United States, the Bank of England and Norway’s central Bank. The European Central Bank announced a broad stimulus package this week, but stopped short of cutting rates.

The Riksbank said the loans - equivalent to around 10% of gross domestic product - would be granted at its repo rate, at present zero percent, with a maturity of two years.

“Our job here is to make sure there is money in the system so that people can buy stuff, and thereby hold economic activity up,” Governor Stefan Ingves told reporters.

Ingves said that the Riksbank was ready to do more if needed with the whole of the central bank’s armoury available, including boosting liquidity and buying bonds of different types, including mortgage-backed bonds.

“We could also, if it were needed, do currency interventions, and of course, we can also cut the repo rate, if we see that is a suitable measure.”

He said, however, a rate cut was not needed now.

“Zero is already a low rate ... and 500 billion in free money is, in our opinion, more effective in the current situation than making small changes to the interest rate.”

Policy makers around the globe are struggling to find the right tools to fight the effects of the coronavirus, which has forced mass shutdowns across different industries, disrupted supply chains and forced millions of people to stay home.

With monetary policy already ultra-loose in many countries - such as Sweden - central bankers have called on governments to do more to fight the downturn.

Sweden’s government announced a package of emergency measures on Wednesday and said it was ready to do more.

Swedbank economist Knut Hallberg welcomed the central bank’s move and said he expected further steps.

“I expect later on that the Riksbank will expand its quantitative easing programme and purchase more bonds... but I think the Riksbank will try to avoid a rate cut,” he said.

The Riksbank, which held its benchmark rate unchanged at zero in February after ending nearly five years of negative rates at the end of 2019, has expressed concern about ultra-low rates for long periods of time.

In neighbouring Norway, the central bank on Friday cut its key policy rate to 1.0% from 1.5% and offered extraordinary loans to the banking industry.

Also on Friday, Sweden’s Financial Supervisory Authority (FSA) said that while it had not seen any direct effects of the coronavirus on financial markets, it had lowered the so-called counter cyclical capital buffers for banks to allow them to maintain credit supply.

It also warned banks not to use the extra cash to boost shareholder returns.

“This is money aimed at cushioning the negative effects from the coronavirus on the Swedish economy,” FSA General Director Eric Thedeen said. “We at the FSA will therefore take it very seriously if the banks were to use this capital contribution to raise their dividends.”

The European Central Bank rolled out a modest stimulus package on Thursday, offering a range of liquidity facilities aimed at businesses likely to be hit hard by the coronavirus.

Reporting by Johan Ahlander, Johannes Hellstrom, Anna Ringstrom and Colm Fulton; Editing by David Evans, John Stonestreet and Nick Macfie