Chat with Stefan Ingves 17 April 2013

Andreas Sjöö (13:34)

Reply: We are adjusting the repo-rate path downwards. This is due to developments in economic activity and inflation, but household debt also plays a role.

Way to go Ingves for sticking to your guns and leaving the interest rate unchanged! The interest rate should really be much higher as capital adequacy requirements have increased, and access to money has declined, shouldn't it?

Rickard (13:37)

Reply: Interest rates on loans are higher than the repo rate because interest margins are also charged. At the same time, access to money has not declined. The banks have good capacity to give loans to both households and companies. Their capital adequacy is already high. This applies in particular if one compares Sweden with other countries in Europe.

Hello Stefan Ingves! You are keeping to an historically low repo rate of just 1.00% until the second half of 2014 at the same time as households' historically high debts are continuing to increase! When will the household debt ratio be so high that it is untenable to retain a crisis interest rate of only 1.00%?

Patric (13:41)

Reply: It is difficult to point to a particular figure. A lot depends on developments in the economy in general. However, it is clear that debts are high in relation to many other countries and we would prefer them not to rise further. High debts create major economic problems sooner or later. There may then be problems for both individual households and the economy as a whole in the form of high unemployment and an inflation rate below the target of 2 per cent.

The krona is appreciating. Unemployment is high. The Swedish interest rate is high in an international comparison. Inflation is close to zero. Has the Riksbank converted the inflation target into a ceiling? Are you carrying out your tasks?

Magnus Olofsson (13:44)

Reply: No, the inflation target is not a ceiling. We have cut the repo rate and are postponing increases in the policy rate because monetary policy needs to be expansionary so that inflation will rise. The CPI is now close to zero, because CPI inflation includes our earlier repo-rate cuts. Sometimes we are under the target and sometimes above it. Given the uncertainty prevailing, it is quite simply impossible to exactly meet the target in the short term all of the time. In a longer perspective we aim for inflation to be as close to the target of 2 per cent as possible.

Hello Stefan, can you describe in a few words why lending to households no longer means anything to you, you are assuming that it will rise now and this was considered a major problem until now. Prices of tenant-owned apartments have risen on average 7% throughout the country over the past 3 months. The risks should be larger than you have earlier estimated.

Edward L (13:47)

Reply: Debt is still a cause of concern, but this question cannot be managed merely in a short-term cyclical perspective. This time debt played a role in our assessment, but further measures over and above the repo rate are needed to slow down the increase in debt. Two examples are the so-called mortgage cap and a return to loans with amortisation payments.

Hello Stefan Ingves! Are you still an independent Riksbank or are your policy rate decisions influenced by the opinions of the finance minister, bank economists and other politicians?

Johan (13:48)

Reply: We are certainly independent. Of course, we do not live in a vacuum, we follow the debate but the decisions we make are ours alone.

The banks have as usual lobbied for lower interest rates in the media. At the same time, the banks' margins are at record levels and the oligopoly in the banking sector is approaching cartel form. If the major banks think the economy needs lower interest rates, wouldn't it be better if the banks first cut their own margins, so that the Riksbank's earlier repo-rate cuts had an effect on the economy?

Håkan (13:51)

Reply: The general interest rate level in Sweden follows the monetary policy rate very well. It does not need to do so from day to day or week to week, but our ability to steer interest rate levels is good. Sometimes the banks' interest margins fluctuate up or down substantially, but this does not affect the efficiency of monetary policy to any great extent.

The Riksbank usually says that a normal level for the repo rate is 4.00%, now we will have a repo rate of only 1.00% for more than a year to come! Do you believe that Sweden will have a normal repo rate at any point in the next few years?

Fredrik (13:56)

Reply: Interest rates are currently low around the world. We believe that growth, inflation and interest rates will all gradually return to their normal levels. Let us say that one assumes that the nominal interest rate is 4 per cent and the inflation rate is 2 per cent. The real interest rate will then be 2 per cent, which is roughly the rate we usually have under normal conditions. It is difficult to assess exactly how long it will take until this occurs. According to our forecast, the repo rate will be around 2.5 per cent at the beginning of 2016 so at the moment we are quite a long way from what is considered normal.

Can you give a more comprehensive answer as to how the Swedish economy will thaw out?

Felix Larsson 12 years (14:00)

Reply: Sentiment has now become more positive than before. Households and companies have a more optimistic view of the future and are expecting to produce more and consume more in the coming period. We believe the economy will move at a normal pace next year.

Last year the Swedish krona was the main focus at one of your meetings as it had appreciated a lot and very quickly (around 75 öre against the euro over 3 months), which resulted in a cut of 25 bp. The meeting after that had household borrowing at the top of the agenda again. Is it the case that you made the adjustment to the impact of the CPI through price changes at that meeting and that at the next meeting household borrowing will be in focus again, or has it now lost its significance for you if it is developing according to your forecast?

Edward L (14:03)

Reply: It is not possible to say in advance which issues will be in focus at individual monetary policy meetings in the future. We always talk about inflation as we have an inflation target of 2 per cent, but then there are always lots of other things happening both in Sweden and abroad. For this reason, the focus in the discussion will vary from one meeting to another.

Unemployment is high, but you do not want to cut the repo rate, do you think that Borg's measures for the labour market are enough?

Gudrun (14:08)

Reply: We have earlier cut the repo rate and we are postponing increases by a period of time to make things easier for the labour market and to attain our inflation target of 2 per cent. We are not able to deal with structural issues in the labour market. This must be left to others. For instance, it now appears to be more difficult than before to match job vacancies to job seekers. Some measures are implemented directly on the labour market between employers and employees and others are linked to various regulatory frameworks managed by politicians.