Chat with Stefan Ingves 4 July 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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In your April report you say that if Europe deteriorates you will cut the repo rate, now you write that the situation in Europe has worsened, so why don't you cut the repo rate? You have missed the CPI target for 10-15 years, so perhaps it is time to make up for it?
Edward Linderoth (13:32)
Reply: We have revised down the forecast for the EMU somewhat, but at the same time things are going better in Sweden so these effects offset one another. We always try to come as close to the target as possible. The repo rate we have now leads to an inflation rate close to 2 per cent in a year or so.
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The positive signs you saw for the Swedish economy in the previous report are still positive in your opinion, with regard to unemployment, for instance, but otherwise "unease from Europe is casting a shadow over the Swedish economy" how do you interpret the fact that the IMF describes your decision-making process as confusing?
Edward Linderoth (13:34)
Reply: Our decision-making process is transparent and clear and we try to be as explicit as possible, there is no general unity as to how this should be achieved, which may be the reason for the IMF's comment.
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Hi, the Swedish people have a high level of confidence in the Riksbank and I agree with them. But what would happen if the situation were the opposite. Can a member of the Executive Board/Governor be fired?
Tommy (13:38)
Reply: Of course we endeavour to inspire confidence as far as possible. A member of the Executive Board cannot be removed from his or her post during their period of office.
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If I have understood correctly, according to the repo-rate path you will cut the rate in the autumn. If you already know you are going to cut the rate, why not do it now?
Tommy (13:40)
Reply: The repo-rate path is our best current assessment. In the autumn it is very probable that the repo rate will remain unchanged. When September comes we will make a new assessment, which takes into account what has happened during the summer. It is not possible to make an advance on the repo rate.
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Hello Stefan Ingves! As today's interest rate of 1.50% is historically low, I wonder what a more normal interest rate should be and when you think Sweden will have a more normal interest rate? Thanks for doing a good job!
Patric (13:42)
Reply: We usually assume that a normal repo rate is around 4 per cent. If one borrows money the lending rate will then be higher than 4 per cent as the banks' interest margins must be added on. Our assessment is that it will take several years before the repo rate is up at this level.
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Hello. Why are there TWO deputy MDs ????????????? Greetings, Roger
Roger V (13:44)
Reply: How do you reach this figure? There are 5 deputy governors at the Riksbank, one of whom is First Deputy Governor. We are a total of 6 members of the Executive Board who set the interest rate.
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Hello I wonder how you relate to the market when the banks no longer set their interest rates in line with the repo rate? If you cut the repo rate the Banks will not cut theirs and thus the State is the only one to lose, as you receive less interest from the Banks. However, if you choose to increase the repo rate the Banks will increase their interest rates. Greetings, Alex
Alex (13:46)
Reply: This is a question that has been discussed a lot recently. If one looks at the statistics over a longer period of time, the various interest rates do tend to follow the repo rate quite well. This does not need to be the case for a period of a few months.
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At the press conference you say that if you attain the inflation target the Government has good scope to manage its fiscal policy, what do you say about the fact that you have missed the inflation target on average over the past 10 years or more?
Edward Linderoth (13:49)
Reply: We have been fairly close to 2 per cent during this period. One cannot expect it to be possible to steer inflation to exactly 2 per cent but we do our best to come as close as possible.
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Hello Stefan Ingves! Isn't it dangerous to have such a low interest rate as 1.50% for a long period of time, given that Swedes have such high debts? Do you think a loan bubble is likely in Sweden?
Magnus (13:52)
Reply: At present there is no danger as there has been and is still considerable spare capacity in the economy. At the same time, it is important to keep an eye on households' growing debts so that they do not create problems going forward. We do not usually define bubbles. The important thing for us is that households do not borrow too much.
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Is Sweden selling off its gold reserve in these uncertain times? If so, why!!
peter (13:52)
Reply: No, we are not selling any gold at present. Our gold holdings are just the right amount.
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According to your new repo-rate path there is a marginal repo-rate cut in the autumn. Does this arise in your forecasting model as a result of having revised down prospects for the macro economy, or have you put it into the forecast yourselves?
Emelie (13:53)
Reply: Models are a tool in our work, but ultimately we ourselves decide how the repo-rate path will look, it is not possible to rely solely on models.
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Is the repo rate still an important tool for the Riksbank to combat inflation and for stimulation on the market when the repo rate has no major impact on the banks' lending rates?
Alex (13:56)
Reply: Yes, the repo rate is absolutely an important and functional tool when we conduct monetary policy. If one looks across a longer period of time, the repo rate and other repo rates in the Swedish economy are fairly well in line with one another. However, this need not apply in the short run, when for instance interest rate margins rise or fall.
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Riksbank Governor, When you say that you analyse transactions to see whether historical STIBOR rates have been correct, what type of transactions do you look at? As I understand it, there is in principle no interbank trading in the longer periods without pledging collateral?
Therese (13:59)
Reply: We analyse transaction data for unsecured interbank loans during the period 2007-2011 to see how they relate to Stibor. The survey is not complete yet but we expect to finish it in the autumn.
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Hellos Stefan. To what extent has your decision on adjusting the repo-rate path downwards been affected by the ECB, Bank of England and Fed now moving towards further monetary policy easing? What role will the krona play in this special monetary policy environment? Can Sweden find itself in the same, and from a monetary policy point of view complicated, capital flow situation as Switzerland, Denmark and Norway?
Robert (14:02)
Reply: We make our own independent decisions based on our own assessments regardless of other central banks. The exchange rate is one of many variables that we consider. This time we are assuming that the krona will appreciate somewhat, but it is very difficult to make exchange rate forecasts. Interest and inflation rates are crucial to us, not the exchange rate.
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Hello, I am concerned about households' large indebtedness, have many friends who have loans they will never repay, but are just speculation on a constantly rising housing market. Isn't this fuelled by low interest rates, and what will happen to their consumption if interest rates are higher in the future? It will affect me and I am therefore worried
Edward (14:09)
Reply: Yes, as you may have noted we Executive Board members have discussed this question at length. We need to have a low interest rate right now, but at the same time we do not want households to borrow too much and experience problems further ahead. One means of managing this mixed message is to hold the repo rate at a slightly higher level than normal. The so-called loan ceiling is also important in limiting the increase in loans. Furthermore, I consider it necessary to introduce a general requirement to amortise loans as soon as possible. This is my final reply for this time. Thank you for all the excellent questions about monetary policy and the work of the Riksbank in general. Have a lovely summer. Greetings, Stefan Ingves
