Maintaining the value of money – price stability
According to the Sveriges Riksbank Act, the Riksbank shall maintain price stability, that is, ensure that inflation is low and stable. This creates good conditions for favourable development of the economy.
The Riksbank has specified its objective as keeping inflation measured by the consumer price index (CPI) at 2 per cent per year. The Riksbank has set a tolerance interval around the target of plus/minus 1 percentage point. The purpose of this is to show that it is not possible to exactly attain the inflation target all of the time. At the same time, the Riksbank cannot accept excessive deviations if the target is to remain credible.
The inflation target should normally be attained within two years, but sometimes there may be justification for allowing the adjustment to take slightly longer, as otherwise it could lead to employment and growth fluctuating unnecessarily.
The Riksbank changes its steering interest rate, the repo rate, to influence inflation. The repo rate determines what the banks have to pay to borrow from or deposit in the Riksbank. The repo rate thus affects other interest rates in the economy and ultimately economic activity.
The financial system
The Riksdag has given the Riksbank the task of “promoting a safe and efficient payment system”. The concept of payment system can now be read to mean the financial system. But what is that?
The financial system consists of banks and other companies (for instance insurance companies and mortgage institutions), marketplaces (such as the Stockholm stock exchange) and infrastructures (for instance Bankgirot). It also consists of the laws and regulations governing those who participate in the system.
It is important that the financial system is stable for many reasons, as it fulfils a number of functions of fundamental importance to society. The financial system enables people and companies not only to be able to make payments, but also to save money that others can then borrow. It is also possible to get help through the financial system in managing risks that may arise in the financial markets.
The role of the Riksbank
It is important that payments can be made safely and efficiently to enable the economy to function smoothly. The smoother and safer the transactions are, the lower the costs and the risks in producing goods and services will be. This benefits growth and employment in the long term. If one of the parts of the financial system suffers a serious shock, the costs to society can be substantial. This is clear not least from the consequences of the bank crisis Sweden experienced at the beginning of the 1990s. There is therefore a need for someone to oversee and ensure that the entire financial system functions smoothly. This is where the Riksbank comes in.
The fact that the Riksbank has this task is mainly due to the Riksbank being the authority in Sweden that issues banknotes and coins and that the Riksbank functions as the bank for other banks.
You can find more information about the Riksbank’s tasks under the links below.
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