Chat with Stefan Ingves 6 September 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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When measuring inflation, why do you exclude the change in price for households' largest expenditure item, i.e. their home (property prices)?
Pål (13:33)
Reply: Property prices are included in the CPI, but in an indirect manner, and with a slow impact. Immediate price changes in property therefore do not have much significance. Interest payments are more important here.
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I think the Riksbank appears reactionary in its repo-rate decision. How much more prioritised than other considerations such as housing prices, etc. is the Riksbank's target that the annual change in the consumer price index (CPI) should be 2 per cent?
Magnus Olofsson (13:36)
Reply: The inflation target has top priority but it is not possible to bring inflation back to two per cent instantly; it takes some time before an interest rate adjustment has an impact. From time to time we may also need to give consideration to other matters, such as production and employment, or financial stability.
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Hello Stefan Ingves! As Swedish households have such large debts, I wonder why the Riksbank is cutting an already historically-low repo rate even further? Won't this create more debt among households? I am concerned for many of my friends who are already mortgaged to the hilt!
Patric. (13:38)
Reply: For several years now, the rate of increase in household borrowing has declined and this is good. It is also important to remember that we now have interest rates that are well below the normal level. The reasons for cutting the repo rate are linked to general economic developments and low inflationary pressures. If lending accelerates again, one may need to consider further measures, in addition to the loan ceiling, to deal with this question.
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What are the biggest problems in the Swedish economy?
Alice Jander (13:41)
Reply: Our task is to manage inflation so it meets the target of two per cent. A very uncertain situation abroad has significant effects on developments in the Swedish economy and on economic policy. We must be prepared to adapt to what is happening around us, not least in the euro area.
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Hi, recent media articles claim that the Riksbank has bought Swedish kronor on the open market, particularly from Swedish financial agents. Earlier this year there were similar reports of purchases of Swedish long-term securities. In both cases the official justification is that the Riksbank is trying to build up a reserve buffer in readiness for future crises. As a participant in the foreign exchange market, this concerns us and our question is: 1. Why would the Riksbank need to buy (pay with foreign currency from the currency reserve) Swedish kronor, when it has the possibility to create as many kronor as it wants in a crisis situation? Isn't there more justification for holding a large reserve of foreign currency instead? 2. In connection with the notification of the bond purchases, it was said that this should not be regarded as a monetary policy action. But in reality this has (albeit on a limited scale) the same effect as a pure QE programme? Doesn't the Riksbank see a risk in this?
FSR (13:44)
Reply: We need to build up a portfolio of securities in Swedish kronor so that we can intervene in the market if this should be necessary. This is done very gradually and over a fairly long period of time. The amount, SEK 10 billion, is not large in this context, either, so it has nothing to do with the monetary policy conducted or with the foreign currency reserve. It is essentially an administrative measure to develop our tools.
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Hi Stefan Ingves! You people at the Riksbank have said that a normal level for the repo rate is around 4.0%, now you are cutting it to 1.25%. Is the Swedish economy in such a bad state that the repo rate needs to be so low? Do you people at the Riksbank believe that we will have a normal level repo rate at any point? And if we do have a normal level repo rate in the future, how do you believe that today's mortgage customers, who already have problems with their mortgages, will manage their loan payments? This is a serious problem, in my opinion!
Magnus. (13:46)
Reply: Yes, the repo rate is far below the normal level and this is something that people with mortgages should be aware of, so that they ensure they have a good margin and will also be able to manage higher interest rates. The reason for the low interest rate is the weak economic activity and low inflation rate.
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[Question via Twitter] @riksbanken: The Riksbank is the worst at predicting the repo rate. Is there reason to revise your forecasting models? #repo-rate decision
@UASTHLM (13:50)
Reply: Every repo-rate decision is based on the information available at that point in time and aims to attain good development of the economy and an inflation rate close to two per cent. We are constantly working on improving our models and entire analysis apparatus, but at the same time we cannot escape the fact that our job is to react to what is happening in Sweden and abroad, and in an uncertain world there will always be a number of unforeseen changes.
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Grain prices are affected by droughts or floods, electricity prices are affected by water levels in reservoirs, clothes prices are affected by the price of cotton, petrol prices are affected by the oil price, the oil price is affected by war, politics and hurricanes, housing prices are affected by demand, jobs in the area. How can Sveriges Riksbank affect goods and services prices with the repo rate? I believe the repo rate is dead as a means of steering inflation, don't you agree?
Gunnar (13:54)
Reply: The interest rate affects demand in the economy via the financial markets. This in turn affects general prices and this always applies, even for the examples you have chosen, which of course affect individual prices. The impact may vary over time, but it does not appear. These are well-known historical relationships.
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Hi Stefan Ingves! Is the Riksbank still an independent Riksbank? Or has today's repo-rate cut been affected by all those who have nagged about interest cuts in the mass media?
Johan (13:57)
Reply: Of course we are independent! We have been watching the direction the economy and inflationary pressures are taking for a long time. We have also cut both the repo rate and the repo-rate path earlier. Now we see a further period of lower inflationary pressures ahead, and this is why we cut the repo rate now. When it is time for a decision, this is made by us six members of the Executive Board.
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In your new forecast you INCREASE GDP, CUT unemployment and nevertheless you end up with a lower path for inflation and the conclusion that the repo rate needs to be cut, how does fit?
Edward Linderoth (14:00)
Reply: Our job is to look ahead; the fact that GDP is higher is due to a strong outcome for the first half of the year. We now see weaker economic activity ahead of us, at the same time the krona has strengthened and productivity is higher than we had expected. We therefore see lower inflationary pressures ahead and this leads to a repo-rate cut.
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The ECB is holding its policy rate unchanged, which was recently announced. Shouldn't the Riksbank have awaited their decision?
Johan (14:01)
Reply: We make our decisions from a Swedish perspective and have no reason to coordinate our decisions with other central banks. This is particularly appropriate as we have a floating exchange rate.
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Inflation has recently been lower in Sweden than in the euro area, despite Swedish growth being higher and unemployment lower. What is causing this?
Hans (14:04)
Reply: Despite the weak economic developments in the euro area, wage increases have not slowed down, at the same time a number of tax cuts were made that increase inflation in the euro area. This has the effect that despite lower growth than in Sweden, prices rise more. Swedish inflation has also been held back by the strengthening of the krona that has taken place since the financial crisis.
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The Riksbank's official inflation target is the CPI, which has averaged 1.4% over the past 15 years, you claim that you are close to attaining the target when you have a CPIF of 1.85%, could you please clarify what the Riksbank's inflation target is?
Edward Linderoth (14:09)
Reply: The inflation target is two per cent for the CPI, but it is not always so easy to attain this exactly in an uncertain world. When we adjust the interest rate, the CPI also changes, so it is sometimes better to look at the CPIF, which is not directly affected by changes in interest rates.
Thank you all for the questions, now I need to rush off to other tasks! Have a good day. Regards, Stefan
