Chat with Stefan Ingves 18 april 2012
Governor Stefan Ingves chatted in Swedish on the Riksbank's website. This is a translation into English of the questions and replies.
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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.
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Your assessment is that cost pressures will increase in 2013. What factors in the economy do you think will push up inflation?
Tomas Molin/Swedbank
Reply: Demand is increasing both in Sweden and abroad. We will have higher growth, increased economic activity. This affects many different markets and leads to price increases, that is, inflation rises. Factors that are important here include the coming wage increases, developments in productivity and the fact that the oil price has risen.
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Hello Stefan, why has there never been a referendum on the central banks? Why do we need you? Why is there a monopoly on money?
Stefan
Reply: Central bank activities and the need for a means of payment, some form of money, have a very long history. Experiences show that if one has a uniform currency, that is, the central bank has the monopoly on issuing money, it facilitates economic activity. How a central bank should be governed has always been a political issue, in Sweden we have chosen to have an independent Riksbank and this has worked well.
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How can the Riksbank choose a higher repo rate and repo-rate path than is necessary to keep inflation at 2% while unemployment is at such a historically high level? The Riksbank's defined target of keeping inflation at or around 2% has systematically been undershot over the past 10 years. Which would indicate that the Riksbank regularly aims too high when setting the repo rate. Why? Does the Riksbank have a hidden agenda that differs from the mandate it has received from the Riksdag (the Swedish parliament)?
Mårten Nilsson
Reply: We have an inflation target of two per cent and we always try to bring inflation as close to this as possible. In the short term, there is always a risk of unforeseen events, such as a rapid rise in the oil price. Then we try to bring inflation back on target a couple of years from now. Unfortunately it is impossible to fine-tune inflation exactly or to predict the future, so we have to be satisfied with trying to get as close to two per cent as possible. I believe that all who have worked here since the inflation target was introduced share the same view here.
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Will the repo rate be cut further according to other economists? Or will it remain unchanged at the same level?
Ferid Halef
Reply: Our forecast is that the repo rate will remain constant at 1.5% for a good year and then be raised gradually.
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Is it fun being Governor of the Riksbank?
Hugo
Reply: Yes it is, especially with the education I have on the subject of monetary theory. Not many people get to work with this in practice.
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You Executive Board members have disagreed for quite a long time now. Why is this?
Anders
Reply: With six members of the Executive Board, plus slightly different experiences and backgrounds, it is not particularly surprising that we sometimes have slightly different views on the future and on what needs to be done in the field of monetary policy.
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Hello Stefan, your own investigation has shown that your forecasts are among the poorest in the world and that inflation has been far below the target for a long period of time, naturally resulting in excessively high unemployment as a side-effect. What are you doing to improve the accuracy of your forecasts and target fulfilment? In brief, what are you going to change?
Mikael
Reply: We are constantly working on ways of improving our forecasts. But then it is very difficult to predict the future. When one studies different forecast data the differences are actually quite small between one forecaster and another.
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Hello Stefan How do the loans to the IMF work? Is there a possibility for Sweden to refuse to lend more money to the IMF? If so, what reasons would there be? Thanks for doing a good job, and have a good trip. Anders
Anders Lönnqvist
Reply: Sweden has been a member of the IMF since the early 1950s and thus has certain obligations that we must follow. The recent discussion regarding a further maximum of SEK 100 billion in loans is a voluntary undertaking and we could say no to this if we wanted to. But our view is that it is good for the IMF, for the countries suffering problems and for Sweden if we take part in this context.
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Hello Stefan, have you thought about resigning after the investigation that showed that the Riksbank is among the poorest in the world at attaining its inflation target?
Janne B
Reply: If one makes a comparison with the situation before we introduced the inflation target, monetary policy has been very successful, as inflation is now much lower than before and also fluctuates much less, at the same time as growth has been high.
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What do you think of the fact that inflation has on average been around 0.5% below the target since the inflation target was introduced, this should mean that you have consistently held the interest rate too high for the past 15-20 years and that Sweden has lost a substantial amount of potential growth during this period?
Sj
Reply: The whole of this period you are talking about has been very successful for Sweden in economic terms. When the inflation target was introduced in 1994, it was quite impossible to answer the question of how close to two per cent it would be possible to get. Given the prevailing uncertainty and the major global changes that have taken place during this period, the deviations we are talking about are actually fairly small.
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Hello! What do you think of the fact that growth in Sweden and large parts of the world has been debt-driven - have we had a too low interest rate during this period? Now it seems as though regardless of interest rate levels, debts cannot continue increasing further, we will be heading for zero growth if the interest rate isn't cut, which will lead to even higher debts and more serious problems further ahead.
Johan
Reply: Good question! The entire problem complex regarding indebtedness is difficult to deal with. This applies to households, companies and governments who have borrowed too much. It has proved very difficult to say stop early enough. To do this one needs to link the discussion on monetary policy to our work on financial stability. How it can be done in technical and practical terms, well a lot of work remains to be done.
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Isn't it provocative that Anders Borg constantly assumes that you will cut the repo rate more than the Riksbank is intending, according to the repo-rate path. It would appear in the long run that the Riksbank's independence is threatened
Axel
Reply: Many people make forecasts for the repo rate, one forecaster is the Ministry of Finance and there is nothing strange about this. One must distinguish between forecasts and decision-making. It is the Riksbank that makes the decision on the repo rate, quite independent of what other forecasters may say.
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Can you who work at the Riksbank invest in foreign currency trading? Isn't it cheating if you already know a few minutes ahead how interest rates will affect exchange rates?
Curious
Reply: No, we are not allowed to be involved in this kind of deal. Any investments made by Executive Board members are reported to the Riksdag and are public knowledge.
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Why daren't the Riksbank let all of the questions get through? Censorship? What happened to transparency? Where is the self-criticism?
Calle
Reply: There is no censorship here at all. I would be happy to answer all of the questions sent in, but there isn't enough time, so we try to choose different types of question to cover as many subjects as possible. Unfortunately, time has now run out for this chat.
Thank you all for showing an interest and for many interesting questions. Welcome back after the next repo-rate decision in early July! Best wishes, Stefan Ingves
