Chat with Stefan Ingves 16 December 2009

Governor Stefan Ingves chatted in Swedish on the Riksbank's website. This is a translation into English of the questions and replies.


was this the Riksbank’s Christmas present to the Swedish people? santa

Reply: Our best contribution to the Swedish economy is to ensure that we attain the inflation target of 2 per cent, at the same time as we have a good development in the economy as a whole. This applies at Christmas and at all other times of the year.


if you bought a house now, would you have a fixed interest rate or not? need advice. emil

Reply: Each individual must consider the risks they wish to take and what their personal finances can manage. Our job is to explain how we view future interest rate developments and what will happen in the Swedish economy. Look at our repo rate path; we believe that interest rates will be much higher in a few years’ time.


What do you intend to do in the next crisis in 2011? When the interest rate begins to approach 3-4%. Your economic policy will mean that many of those with loans for millions of kronor will lose purchasing power. Isn’t it time to have a more realistic view of the future. ad

Reply: We do not believe there will be any crisis in 2011. Then inflation will be close to the target and growth will be around 3.5 per cent, that is, the economy will have normalised and be on the right path.


How does the Riksbank motivate a continued crisis measure such as zero interest rates in a situation with soaring indebtedness and inflated asset values? When one should really be reducing indebtedness you are instead encouraging borrowers to borrow too much. And the banks which should be reviewing their assets & credit risks and "paying" for their earlier excesses, they are suddenly given a helping hand and instead see a tangible increase in their profits. What kind of signal does this send to the credit markets (moral hazard)? Sure, it may be motivated in a crisis situation but are we still there now? Tomas

Reply: There is still ample spare capacity in the Swedish economy, unemployment is rising and inflation is low, below our target of 2 per cent. There is then justification for holding a low interest rate so that we can gradually attain our inflation target at the same time as the low interest rate contributes to holding up demand in the economy.


it seems as though the financial crisis is over, would you agree? Robert

Reply: The crisis is not over. Many markets are functioning much better now than they were one year ago, but there are still many bad loans that need to be managed in various parts of the world. However, there should not be any new acute crisis on the horizon.


Would like a good answer to give the banks when they claim that the CPI is the wrong measure of inflation; they claim that the CPIX is the measure you use in practice and that this is the "right" one - please explain how it works with the CPI in the long term Frida

Reply: The CPI is actually the best measure of inflation that we have. The fact that the CPI fluctuates in the short term as the interest rate changes does complicate the analysis somewhat, but it is not a major problem. Sometimes it is also a good idea to look at other measures, such as the CPI excluding changes in energy prices.


Can it really be so that interest rates to a greater extent affect imbalances and structural problems in an economy than was traditionally perceived? Is it actually the case that interest rates have a greater impact on, for instance, households’ behaviour than one might initially have believed? Is there an inherent risk here in the assessments of a particular interest rate situation, and the risk of creating new bubbles? Tomas

Reply: The way the financial markets have developed it is highly probable that sensitivity to interest rates is higher today than it was, say, 20 years ago, as we now have a structure where interest rates play an increasingly important role for many people.


Hi, I am studying economics at Lund University. I wonder if it is possible to apply to do work practice at the Riksbank. Best wishes, NickNick

Reply: Contact our personnel division! How nice that you are interested in the Riksbank as a workplace.


If things are expected to get better, why is unemployment rising?? Micke Jakobsson

Reply: The labour market normally lags behind in an economic cycle and it takes particularly long time before there is a turnaround in the labour market.


Will the consumer price index (CPI) regain the role of important indicator for estimating inflation in the future, or is mortgage interest expenditure too large a part of household expenditure for the measure to be of any use in the future? Erik

Reply: The CPI is the best measure we have of price rises. It is well-established and has long been used in a number of different contexts. The fact that the CPI fluctuates a little more as a result of interest rate changes is no major problem for us when we make our decisions.


What happens if other central banks raise their policy rates before you do? Hans

Reply: Nothing much. We conduct a monetary policy that is adapted to conditions in Sweden; we do not coordinate our interest-rate setting with other countries.


the interest rate appears to be immune to what is happening in the Swedish economy and abroad, what is needed to change it? Curious

Reply: There must be sufficient activity in the Swedish economy for the interest rate to change, and this has not happened yet. At present there are different forces pulling in different directions, they carry

similar weight and there is no reason to change the interest rate. 


Is the large-scale Norwegian cross-border shopping in Sweden inflationary or anti-inflationary for Sweden? Daniel the Norwegian

Reply: Cross-border shopping has very little influence on general economic developments in Sweden as a whole, but of course is very important locally along the borders.


Are you in the lap of the government Leif

Reply: No, certainly not. The Riksbank is an independent authority under the Riksdag, the Swedish parliament. The government has no influence over our activities. We set the repo rate quite independently.


Your forecast points to an even lower CPIF for 2010. The forecast has actually been lowered with the motivation that the krona has strengthened. The krona has already appreciated against both the dollar and the euro since March 2009, unemployment has increased and yet the CPIF has risen in recent months and is now above 2%. I find it difficult to see that the CPIF would be lower next year if one envisages increased demand (GDP growth). You clearly don’t agree with me, so where do you consider my reasoning to be wrong? Niklas

Reply: The exchange rate affects inflation with a time lag, and we believe that the recent appreciation will put downward pressure on inflation further ahead.


Quote from the Riksbank’s website "The Bank has one objective – to ensure that inflation is low and stable. The consumer price index, CPI shall be held around 2 per cent." According to your own forecast, the CPI will be more than 3% in 2011 and 2012. Why can’t you manage to attain your one single objective? Niklas

Reply: The CPI includes changes in interest rates. When the interest rate rises, the CPI also rises in the short term, but in the longer term this effect disappears and this is why it is good to have a CPI target of 2 per cent.


Hi. When can one assume that the krona will return to more normal levels? Will it remain weak as long as the repo rate is so extremely low? Jonathan Holgersson

Reply: Our forecast is that the krona will strengthen in the future and approach a more normal level during 2010.


Hi Stefan Ingves, Is the GDP gap positive or negative right now in Sweden? How far is household consumption affected by house and share prices? [email protected]

Reply: At present the GDP gap is very negative, that is, there is ample spare capacity in the economy compared with the normal state of affairs. Consumption is affected to some extent by how household wealth develops, but the most important factor is household income.


Can the Swedish central bank’s policy rate really affect inflation? In the current global competition prices are purely determined by supply and demand. Gunnar

Reply: Yes, we can. Interest rates and inflation are linked. When the interest rate is low it is easier to borrow money and then demand rises, and when the interest rate is high the situation is reversed.


how does one know when the interest rate is about to rise again, so one can fix the interest rate on one’s loans. malin statin

Reply: To fix or not to fix, only you can decide this. When it comes to interest rates, you can look at the repo rate path in our Monetary Policy Update. This is our assessment of the future direction for the repo rate.


Hi Stefan! Why did you begin to study economics when you were young and did you show talent straight away or did even you find some concepts difficult? Erik, Uppsala

Reply: I have always been interested in the way society functions in a broader sense, so it felt natural for me to begin studying economics.


Hi i wonder what to do about interest rates, we have bought a house and i don't know whether to choose a fixed interest rate now or whether to wait. carina sjöström

Reply: Fixed or variable interest rate? Only you can decide. If you look at our repo rate path you can gain an idea of what we believe will happen further ahead. At present the repo rate is extremely low, so count on higher interest rates in the future.

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