Chat with Stefan Ingves 24 oktober 2013
Governor Stefan Ingves chatted in Swedish on the Riksbank's website. This is a translation into English of the questions and replies.
Many thanks for your interest and for so many good questions. Have a good day. Regards, Stefan Ingves.
- At the Riksbank, you normally say that a normal level for the repo rate is around 4.00%, but now we have a repo rate of just 1.00%. When do you expect the repo rate to be at a normal level again?
Fredrik (13:34)
Answer: The repo rate is low at present so that we can get inflation up to two per cent. If our forecast is correct, we'll slowly start to increase the repo rate at the end of 2014 and we expect the repo rate to be about three per cent at the end of 2016. It's difficult to say what will happen next, but we have a long-term interval of between 3.5–4.5 per cent for where the repo rate normally should be.
- Hi Stefan Ingves! How will financial stability be affected if we have a housing bubble (the IMF has warned Sweden of this) that then bursts, bearing households' high indebtedness in mind?
Patric (13:38)
Answer: Consumption would be affected first, as people would start to save more to repay their loans. Demand in the economy would then fall and unemployment would probably increase. If things get so bad that people become unable to repay their loans and this affects a lot of households, the banks will also run into problems and there will be even more worries over economic development. It would take many years to reverse a development like this, and this is why we ought to put the brakes on in time so that we don't end up there.
- Hi Stefan Ingves! The repo rate is historically low and household debt is historically high. Wouldn't the right medicine be an interest rate hike instead?
Anders (13:39)
Answer: It's a matter of finding a balance. Just now, the repo rate needs to be low, as inflation is below our target of two per cent.
- At the moment, it pays to borrow. When do you think it will pay to save in Sweden?
Rut (13:42)
Answer: As we have low inflation, we need a low repo rate. When economic activity improves and the repo rate rises towards more normal levels, you'll get a better interest rate on your savings. A more involved way of describing the same thing is to note that, at present, the real interest rate (interest rate minus inflation) is negative. Under more normal circumstances, the real interest rate will be positive and then it will pay to save again.
- Is the Riksbank still an independent Riksbank, even though the Minister for Finance and the Minister for Financial Markets have other opinions on who should be responsible for household indebtedness?
Patric (13:45)
Answer: Yes, we're just as independent as we were before. Our two assignments are to maintain price stability and to promote a safe and efficient payment system. We do this by having an inflation target of two per cent when we conduct monetary policy, we issue banknotes and coins, take care of large payments between banks in Sweden, administer the foreign currency reserve and monitor financial stability.
- Hi. What's your view of the continuing high level of unemployment and that it just gets higher for every month that passes? Does this affect the repo rate? You say that it's getting brighter, but who is it getting brighter for?
Sahin (13:48)
Answer: It's worrying that unemployment is high but, at the same time, there are positive signs. Unemployment has fallen to an extent recently. When economic activity picks up in 2014, we expect an increasingly apparent improvement on the labour market. At the moment, the low repo rate is supporting the development of the labour market. When economic development then starts to normalise, the repo rate will slowly start to rise.
- Hi Stefan. Your NAIRU is 5–7.5%. Considering your view of the labour market, I wonder how this will change.
Edward Linderoth (13:52)
Answer: It is very uncertain how low unemployment can fall and what a long-term sustainable level of unemployment is. This is reflected by the fairly broad interval we have for the level of long-term unemployment. Our assessment is that it will take some time before unemployment falls more tangibly, as it is difficult to match jobseekers with vacant jobs at the same time as an increasing number of jobseekers are difficult to employ, for various reasons.
- Why have you changed the name of your forecasts to uncertainty bands? They're forecasts, so there isn't a promise or any other certainty in them anyway.
Magdalena Andersson (13:55)
Answer: The repo-rate path is a forecast of what we'll do with the repo rate in the future. The band or interval that we place around the repo-rate path is our attempt to illustrate the prevailing uncertainty surrounding our forecast. Above all, this interval shows how rapidly uncertainty rises when we look further forward. If economic development doesn't turn out like we expected – well, then we'll just have to change our minds too.
- Will you be focusing less on household indebtedness in future considering that FI has been given overall responsibility for macroprudential policy? It won't be your responsibility any more unless you push FI out of the way.
J (13:58)
Answer: It depends on what happens later on. If the debt situation calms down, we'll get a greater degree of freedom in monetary policy. It's good to see that how these decisions are to be taken has now been made clear but next we'll have to see what decisions will be taken and what effects they'll have on the economy.
- Hi. You usually say that the level of the repo rate will be normalised in 2016. This is when your period of office expires and somebody else will take your watch. What will happen if the next Governor of the Riksbank is a dove? Will we then reach normal levels in 2020?
Rune (14:00)
Answer: Regardless of who is Governor of the Riksbank, rate-setting is governed by the inflation target and this is also how it will continue to be in the future.
