Chat with Stefan Ingves 11 February 2010

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


I am about to buy a house. Which interest rate do you think I should include in my calculations? Johanna

Answer: A higher rate must be expected in the period ahead. We believe that the repo rate will eventually approach 4% in a few years. The banks’ interest rate margin should be added

to this, so that mortgage rates will be higher than 4%. However, this is our forecast and not a promise. The future is always uncertain.




If the economic crisis in the PIIG countries should become worse, how would this affect Swedish monetary policy? Does the Riksbank have any ideas on this? August

Answer: It is difficult to see any direct effects. The monetary policy we conduct is, of course, adjusted to Sweden’s circumstances. The crisis may eventually indirectly affect Sweden if demand for goods and services in Europe is impacted, as our exports are extensive.




Is it difficult to take these important decisions that affect so many people? Inger

Answer: It is never easy or straightforward to take any major decision, but, to an extent, you do get used to it over the years. Against the targets we have, we constantly strive towards the favourable economic development of Sweden. Above all, the inflation target of 2% acts as our guide.




How do you see unemployment developing in the period ahead? Will it be difficult to get a job in the coming years? Student

Answer: The situation appears better than we previously believed, but, unfortunately, unemployment will continue to lie at just above 9% over the next few years, although the situation looks quite different in different areas of the Swedish economy.




Why are you imitating the United States’ interest rate policy? As everybody knows, their low long-term interest rates caused the crash. Do you want a boom-and-bust economy? PS. Stable prices are the last thing we have here in Sweden at present. Matti

Answer: Events in the United States do not determine monetary policy in Sweden. We formulate our monetary policy so as to meet our inflation target of 2%, and we do this independently of the actions of other central banks.




Hi! What are the important factors in a financial crisis and how can financial crises have such a severe effect globally? What is the “last drop” that makes events move so quickly once a crisis has become a fact? Mattias F

Answer: These days, many banks conduct an important part of their funding activities on the global market. One consequence of this is that everything is much more interconnected than before – so problems spread more rapidly than before. Once confidence is affected, this can rapidly have negative consequences.




Hi there. You write “the repo rate will continue to be quite low for a long period of time”. What does this signify, in your opinion? Is one year a longer period of time? Is there any point, at the present time, in fixing the interest rate on my mortgage for five years? Benny

Answer: Our current assessment is that, in one year’s time, the repo rate will be approximately one per cent. You must decide yourself whether to fix your mortgage rate or not. The most important thing to do is to think through which risks you are taking.




Hi Stefan! Could the crisis in the so-called PIIGS countries change Sweden’s monetary policy, should the situation there deteriorate? August

Answer: The direct connections between these countries and Swedish monetary policy are minor. Indirectly, problems with national debt will lead to lower demand in the future, which may have an impact on the Swedish economy.




Hi Stefan. How many percentage points above the repo rate can mortgage rates generally be expected to lie? Thank you. Jonas

Answer: On average, the variable mortgage rate usually lies approximately 1.5 percentage points above the repo rate.




Hi! We have saved a respectable sum of money towards a house purchase, but have been outbid by individuals borrowing, in principle, 100%. Which proportion of saved capital do you think it is reasonable for a homebuyer to invest so as to leave a safe margin if housing prices sink? Or should the government (the National Housing Credit Guarantee Board etc.) and the Riksbank always just allow housing prices to increase? Aren’t you ignoring the moral hazard you are creating by always lowering interest rates to extremely low levels so as to enable prices to be pumped up even more? It is currently possible to pay the interest on a loan of SEK 4 million through child allowance alone, if you have three children (1% variable mortgage interest rate before tax, 0.7% after). Does everybody have a statutory right to luxury housing? ‘Lease Muppet’.

Answer: It is difficult to answer your question in detail, but I do not think it wise to mortgage your home to 100%, and you should also amortise the loan. However, at the end of the day, each and every one of us must stand for our own decisions and ensure that we can pay.




What is your opinion on the gold standard? Should the Riksbank buy more gold, as other countries are doing? Fredrik

Answer: No. We have been selling gold for a longer period of time, as we have had too much gold in our foreign exchange reserve. The gold standard is not relevant to Sweden.




The Swedish Building Workers' Union is justifying its demands by claiming that the Riksbank has judged that there exists scope for a wage increase of 2.5 per cent. What is your response to this? Kjell Frykhammar

Answer: We do not make any statements about scope for wage increases. We make a forecast of how we believe wages will develop. Wage negotiations are the responsibility of the social parties. Our job is to ensure that inflation lies at two per cent, given wage developments and other events in the economy.




Wouldn’t it be better if the government took control over the issue of coins and banknotes? Bengt

Answer: The present system with an independent central bank with the target of stable prices works excellently.




Upon which dates in 2010 will the upcoming monetary policy meetings take place? Göran Berg

Answer: All the relevant dates have been announced on our website. Please look there.




Hi. I read that the repo rate is planned to be increased before this autumn. Do you think that there will be a repo rate increase before June? Ulrika Svensson

Answer: We expect that the repo rate will start to be increased during the summer or early autumn.




Hi! Within which range would you like to see the TCW index lie? At present, it is at 135.72. When will we get a strong krona? Bertil J

Answer: We believe that the TCW index will lie at around 127, but we do not have any target for exchange rates.




Hi Stefan. What will happen with the possible repo rate increases? Will be able to keep our low mortgage rates for a while longer? Roger

Answer: We expect that the repo rate will be increased during the summer or early autumn, but interest rates will continue to be quite low for a long period of time.

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