Martin Flodén: The Riksbank's balance sheet - how large should it be in the future?

Speech by Mr Martin Flodén, Deputy Governor of the Sveriges Riksbank, at the Swedish House of Finance, Stockholm, 13 April 2018.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Prior to the financial crisis, the Riksbank had a balance sheet of about SEK 200 billion. It now amounts to SEK 870 billion. The balance sheet has thus risen from 6 per cent to 20 per cent of GDP (see figure 1). This recent growth in the balance sheet is an experience we share with many other central banks. It is primarily a result of central banks having complemented low interest rate policy with asset purchases in order to make monetary policy even more expansionary.

This expansionary monetary policy has had an impact and helped strengthen the economy as well as push up inflation to levels that are compatible with the inflation target. In Sweden, we are therefore approaching a situation where the monetary policy expansion can start to be tapered and the interest rate and balance sheet can start to be normalised. But what will monetary policy actually look like in a future "normal situation"? This is currently a subject of intense discussion among many central banks and other agents. Analyses by the Riksbank and others indicate that average interest rates in the future will be lower than what was deemed normal in the decades before the financial crisis. But what are we to expect from the Riksbank's balance sheet in the future? This is the question I would like to discuss today.