Chat with Stefan Ingves 16 February 2012

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






At the start of the year, you believed that the repo rate would be 1.75 for the rest of the year. Now you're saying that it will be 1.5 in 2013. How sure are you of this assessment??

Tomas M (13:36)

Answer: It's our best assessment at present. At the same time, we've always been careful to point out that the interest rate path is a forecast, not a promise.




Why did the Riksbank sell half of the gold reserve and use the money to buy securities? Are securities worth more than gold? Is gold money?

Yours sincerely, Henrik Ulveland (13:40)

Answer: We still have some gold left. At the start of the year, the value of this gold was about SEK 43 billion. Gold doesn't generate any interest income, but bonds do, making it a matter of holding just the right combination of securities and gold.




If the trend of banks not lowering their interest rates continues, what will your tasks and objectives be?

Fredrik Andersson (13:43)

Answer: Our objective, an inflation ceiling of two per cent, won't change. History clearly shows that monetary policy influences the general level of interest rates. This will continue to be the case, even if interest rates don't match precisely over the short term.




Hi. What do you think the right interest rate should be for a variable-rate (three-month) loan, now that the repo rate is 1.5%? Assume a good loan-to-value ratio in a detached house in Täby and a good income.

Regards, Georg Norberg (13:46)

Answer: Monetary policy isn't designed to steer short-term mortgage rates in detail. Interest rates vary somewhat from bank to bank, with what's "right" being decided by the lender and borrower – so this is a matter to discuss with your bank.




Hi Stefan. I wonder why the Riksbank wants to have a rate of inflation of 2%, regardless of whether we're having an upturn or a downturn. Why does the Riksbank want consumer prices to go up by 2% per year when consumer prices should instead be falling due to increased efficiency in production and lower production costs per unit? This also applies to many services. Thank you!

Ola (13:50)

Answer: It's far enough from zero, but not too high either. Closer to zero can mean falling prices (deflation), which can lead to serious economic problems, while a rate of inflation far above two per cent also leads to a large number of economic problems. This target also corresponds well with the decisions made by other central banks for achieving good general economic development.




Hi! When the Riksbank's counterpart in Denmark recently renewed its banknotes, the various competition entries were published on the bank's website. Will you be doing the same? If not, why not?

Martin (13:53)

Answer: As far as I know, we're also going to publish the competition entries further ahead, in early spring, when we've gotten a bit further in the decision-making process for this major project.




As the policy rate no longer seems to govern either deposit or borrowing rates, what does it actually govern?

Ruben (13:55)

Answer: I don't agree. Seen over the longer term, there is a very clear connection between the repo rate and mortgage rates. The Riksbank governs the general level of interest rates in Sweden and will continue to do so.




Could a lower interest rate increase the risk of even higher private indebtedness in the housing sector, even if the intention is to make it cheap?

Faradj (13:58)

Answer: In general, people borrow more when interest rates are low. This increases household indebtedness, which can create problems if many people borrow too much. There is no easy balance between these areas.




Hi. With so many unemployed, why don't you lower the interest rate more to create more demand?

Mauritz Nilsson (14:00)

Answer: Because then we'd be running the risk that inflation would eventually become much too high. So we have to find just the right balance to contribute to lower unemployment while also keeping inflation under control. Over the forecast period, we expect unemployment to fall in a year or so.




The EU Commission warned Sweden this week that Swedish households have borrowed, and continue to borrow, too much. How are we going to address this if the policy rate is lowered?

Dan (14:03)

Answer: At the moment, Swedish households are not borrowing at the same fast rate as previously, which I think is good. At the same time, of course, this is something that we'll have to keep an eye on, as it'll be cheaper to borrow when interest rates go down.




Why don't you think it'd be good to lower the repo rate to 1.25 per cent?

Emmy (14:05)

Answer: It's a matter of continually finding a balance between the level of interest rates and the future rate of inflation and general economic development. Going down to 1.25 per cent would be overdoing it right now.




Hi. I was wondering how the Riksbank views the fact that the banks don't lower their mortgage rates when the repo rate is lowered. What do you think of this? Is it wrong of the banks not to go down? As a mortgage customer, I've been following the Riksbank's interest rate decisions, but unfortunately I'm becoming increasingly uninterested.

Catarina (14:08)

Answer: Over a slightly longer perspective, there is a clear correspondence between the repo rate and mortgage rates. There's no reason to believe that this has now changed, even if the correspondence isn't always perfect, particularly not on a week-to-week basis.




How can lowering the interest rate by 0.25% be called a job? It must have been obvious to all and sundry that that was the only alternative.

Johan på Huset (14:11)

Answer: It might not seem so much, but a huge amount of analytical work is carried out every time we take an interest rate decision. This is also the case on occasions when the interest rate remains unchanged, for instance. We always try to take absolutely the best decision possible. And that's how it was this time too.




Fiscal policy is relatively restrictive, GDP growth is non-existent, unemployment is rising and inflation is far below target. What reasons are there for not putting the pedal to the metal?

Anders Johansson (14:14)

Answer: The repo rate is already very low. If we speed away too fast, after a while this will lead to accelerating inflation, and that's not good for the development of the economy either – so yesterday's decision provides just the right balance. And, of course, it also takes time for monetary policy to have its full impact.




It can sometimes be heard that the stock market has already incorporated a Greek national bankruptcy into its pricing. Has the Riksbank included this scenario in setting the repo rate?

Tommy (14:16)

Answer: We expect that, after a while, the fiscal problems in Europe will be solved without any major catastrophes. That's our basic scenario.




Hi Stefan. Long-term interest rates are at very low levels, historically. How much lower can they go? What does your scenario look like?

Lars Jansson (14:23)

Answer: We assume that the interest rate will remain at 1.5 per cent throughout 2012 and some way into 2013. Chapter 2 of the Monetary Policy Report includes a number of scenarios in which things develop completely differently – for example, under certain circumstances, the interest rate may fall to zero per cent and, under other circumstances, rise towards three per cent. In an uncertain world, 1.5 per cent is the best assessment we can make at present. Many thanks for all of your good questions about monetary policy. Unfortunately I couldn't answer them all, given the time at my disposal. See you again in April, when it'll be time for the next monetary policy decision. Best regards, Stefan Ingves.

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