Chat with Stefan Ingves 25 October 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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Keeping the interest rate up reduces the risk of a housing bubble, at the same time as companies and thus employment are impacted. Why does the Riksbank prioritise the first effect so much more than the second? Isn't it rather the case that the government and Riksdag have the best means to counter a housing bubble, while the Riksbank is best able to keep inflation close to the target of two per cent? Do your experiences as head of the Swedish Bank Support Authority in the 1990s lie behind your approach?
Magnus Olofsson (13:34)
Answer: Monetary policy plays its part when weighing up matters of this kind. At the same time, the mortgage cap, amortisation, the banks' capital adequacy, the banks' risk weighting of loans for housing and liquidity regulations also play a major role. The difficulty lies in weighing all these measures together so that the sum is just right, that is to say that we achieve generally strong economic development at the same time as households don't borrow too much. My experiences from the Swedish Bank Support Authority certainly play a part. It's a pain in the neck sorting out problems like these afterwards, because, among other things, employment is impacted and often for quite a long time.
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Hi Stefan Ingves! The repo rate of 1.25% is historically low, at the same time as households' debt ratios are historically high and the growth rate of household debt is around 4.5%, which makes me very concerned, so I wonder how long you at the Riksbank can maintain such a low repo rate as 1.25% without jeopardising Sweden's entire economy?
Patric (13:37)
Answer: We expect the repo rate to remain at about this level until autumn 2013 before then gradually being raised. This will give us appropriate economic development, with inflation rising towards the target at the same time as household debt in relation to income remains on about the same level as now.
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Last time you raised GDP and lowered unemployment, then you lowered the interest rate... Now you're lowering GDP, increasing unemployment, and companies are making a noise about decreased activity while redundancy notices are increasing sharply, but you're doing nothing. Transparency is one of your catchwords, isn't it? Were the debt ratio and lending the ONLY points of interest at this meeting? They didn't get any attention at all at the last meeting. A lot of people will agree with the IMF's criticism that it's difficult to follow your reasoning. What's your view of this?
Edward Linderoth (13:41)
Answer: These are questions that have long been discussed in the Executive Board, including well before my time. You can find these discussions in speeches and minutes, but also in the Monetary Policy Report. It includes broad reasoning about economic development and a large amount of information apart from the matter of household indebtedness. It's the overall picture that determines the content of monetary policy.
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Hi Stefan Ingves! You at the Riksbank usually say that a normal level for the repo rate is around 4.0%, but now we have a repo rate of only 1.25%. Do you think that Swedish households that are now taking bank loans will have such healthy margins that they'll be able to cope with their bank loans when we have a more normal repo-rate level of 4.0% plus the bank's lending rate? Isn't there a risk that today's mortgage customers will become addicted to these low interest rates?
Magnus (13:44)
Answer: A low interest rate supports general economic development, but, on the other hand, there is also a risk of borrowing too much. It's all about finding the perfect balance. Both banks and households should count on other, significantly higher interest rates that they should also be able to cope with. This is exactly why people make what are usually known as 'left-to-live-on' calculations for various interest rate levels.
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Hi Stefan Ingves. From your point of view, is there reason to give at least moral support to the development that the ECB is now driving to deal with the problem in the euro zone, i.e. breaking the link between the debts of the banks and the member states, and reducing the risk in the system? Regards, Jonathan Boyd, web editor, InvestmentEurope, +44 (0)20 7316 9193
Jonathan Boyd (13:47)
Answer: It's in everybody's interest to solve the problems in the euro area as soon as humanly possible. This will also be of great benefit to Sweden. Financially, we're prepared to contribute USD 10 billion in the form of lending to the IMF, which then lends the money on to countries that need help. The Riksdag will make the formal decision on this type of lending quite soon.
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Hi. I've read your article on the functioning of the labour market and found it very enlightening. How does the deterioration in matching affect your forecast? Does it play a part in your view of resource utilisation in the economy or rather your view of long-term equilibrium unemployment?
Regards, Karine (13:51)
Answer: When it comes to the forecast, we have adjusted unemployment upwards, and it will also take a longer time before unemployment retreats. The deterioration in matching is a part of the revision of the forecast, but economic activity also plays a part.
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Hi Stefan. As we all know, steering the repo rate is a way of trying to maintain price stability. Another way is, of course, to steer the exchange rate between the krona and other currencies. Is this something that you have considered on the Executive Board?
Annika (13:53)
Answer: No, we tried to do that up until 1992, but with little success. We've had a variable exchange rate and inflation targeting since then. This has worked well for Sweden and we'll continue in this way. Exchange rate targeting is not an option.
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In your article last week, you say that today there are few other tools than the repo rate for managing household indebtedness. What do you see as the likeliest and easiest to carry out – tax deductions for interest payments or amortisation requirements?
P (13:55)
Answer: I think it would be good to have both, but I can't judge what will happen next. This also needs a political discussion and where that would lead, I don't know.
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What do you think the next interest rate decision will be? Is it more likely that there'll be an increase or a decrease?
Hans Nord (13:59)
Answer: The assessment we've made this time is that it's now more likely that the repo rate will be lowered than raised over the winter. A continued low repo rate will stimulate the economy and lead inflation to rise towards the target of two per cent in 2014.
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Where is Sweden's gold reserve???
Tina (13:59)
Answer: We can't answer that. It's secret!
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Should the ECB lower the interest rate?
Pelle (14:01)
Answer: It's not our business to make that kind of assessment. We conduct Swedish monetary policy and the ECB conducts monetary policy in the EMU.
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Hi Stefan. You've been criticised by IF Metall (the Swedish Metalworkers' Union) for your statements on minimum wages. Do you consider making recommendations to labour market parties to be part of the Riksbank's mandate?
Niklas Orrje (14:05)
Answer: We don't make any recommendations, but we do closely follow what happens, as the development of wages influences economic development and the rate of inflation. Both are important when we're considering how monetary policy should be formulated.
