Chat with Stefan Ingves 13 February 2014

• Hello Stefan Ingves! Now you are holding the repo rate at only 0.75% at the same time as the growth rate in household debt increased by 5.3% in 2013 to a total of SEK 2,900 billion, what will happen to financial stability if and when the housing price fall comes?

Patric (13:32)

Reply: First and foremost, consumption would fall, secondly there would be problems in the financial sector. But it is precisely these problems that we are trying to avoid by taking various measures in good time.

• Will the repo rate be lower during Q2 2014?

Micke (13:33)

Reply: Our forecast is that the repo rate will remain at its current level.

• Hello Stefan Ingves! A repo rate of 0.75% is far from a normal level of 3.5%-4.5%, when do you think we will have a repo rate at the normal level again? And how important is this?

Magnus (13:35)

Reply: It is reasonable to believe that we will return to this level in the long run, but the important thing is not the level of the repo rate, the important thing is to attain our inflation target of 2 per cent. And this can probably be attained at many different interest rates, depending on general economic developments and the rate of inflation.

• Hello Stefan Ingves! I think it is frightening that households’ largest assets consist of the value of their homes, bearing in mind that if there is a heavy fall in housing prices this “wealth” will disappear, but the debts will not, what can the Riksbank do and how important is it that politicians help out to prevent a catastrophe for mortgage customers and banks?

Fredrik (13:36)

Reply: We have consistently been pointing out that this is a cause for concern. A risk that needs to be dealt with.

• Hello Stefan, in 1995 we had a repo rate of 8.91% do you think we will ever have a repo rate at this level again?

Johan (13:37)

Reply: It is very unlikely in the near term but in the longer run one cannot rule out this possibility.

• Why do we have a riksbank?

karl-magnus (13:40)

Reply: Otherwise we would probably have a number of different currencies in Sweden and we know from our history that there are tremendous advantages in having a common arithmetical unit/measure of value, that is currency. One means of achieving this is to have a central bank/national bank (riksbank) that ensures this  “standardization” works.

• Who decides what the Riksbank should do?

Mia (13:41)

Reply: The Sveriges Riksbank Act stipulates who does what. We are an independent public authority under the Riksdag, the Swedish parliament. The daily operations are headed up by the Executive Board.

• Hello Stefan, Thank you for being available to chat with people! Global oil production was rising almost uninterruptedly for 100 years. When production declined, economic developments suffered. When economic developments suffered, the central bank helped out by cutting the policy rate. This made new investments (in oil) possible and the global economy recovered.  Although the central bank has now had extremely low policy rates for several years, the economy has not recovered. Can this be because, despite the large investments in oil, global production has actually been declining since 2005? I look forward to your reply!

W. Voortman (Uppsala) (13:44)

Reply: I cannot see that the question of oil production is the most central issue in connection with the recession we have experienced. A long list of factors has combined to create the severe fall in global growth we had some time ago. Various problems in the financial sector have played an important role here.

• Hello Stefan Ingves! Swedes’ debts are at 170-180% of their disposable incomes, what is the situation in other countries? Are we at the top of some sort of debt league?

Carl (13:46)

Reply: We are high up, but not at the top of the league, Norway and Denmark are higher than us, for instance. But we are at high levels in a historical comparison and the trend is moving in the wrong direction, with debts continuing to rise faster than incomes.

• Hello Stefan. Five years have now passed since the financial crisis and the onset of the recession. Some analysts, including yourselves, seem to think that the western world is moving in the right direction, at the same time the budget deficit is around 3 to minus 5% of GDP and debt in relation to GDP is almost 100%, this is at the same time as interest rates are close to zero and several central banks have further measures on the go. If the strength in the economy you have been talking about for a long time does not emerge, some export companies are continuing to point out that demand is weak in their reports for Q4 and their forward planning, what tools do you then have in your toolbox?

Edward linderoth (13:49)

Reply: We now have this low interest rate and a number of indicators point to stronger economic activity so I do not believe the question is really relevant. If developments were, unexpectedly, to be completely different, we would take a stance on this when it happens.

• Should a normal repo rate still be between 3.5%-4.5%? And if it is to be cut, will the inflation target also be set lower?

Johan (13:51)

Reply: No, the inflation target and the interest rate are not interlinked in the way you suggest. The inflation target of 2 per cent stands firm, regardless of what is regarded as a normal repo rate.

• Hello Stefan Ingves! Is it difficult to have to take all the media criticism yourself if you raise or cut the repo rate, given that there are six board members who determine the level of the repo rate?

Patric (13:52)

Reply: No, I know what my job is and what it requires. It is not possible to make everyone happy.

• The Riksbank is independent, can you explain why this is so important?

Magnus (13:54)

Reply: Going back in time, before central banks were independent, the temptation was sometimes too great to create too much inflation in the short run. This damages the economy in the long run and the Riksdag therefore decided to change the law so that the Riksbank became independent and can focus on its inflation target of 2 per cent.

• What is your assessment of the development of the repo rate in 2014?

Stig Gelderman (13:55)

Reply: The repo rate currently needs to be at this low level for inflation to pick up and rise to 2 per cent. Our forecast is that the repo rate will remain at 0.75 until the start of 2015.

• What is your analysis of the Q4 reports from the export companies? It doesn’t seem as though they are attaining what the markets expect and their outlook on the future appears more cautious than yours. How does this match your analysis of future developments? Nor do they seem to want to invest to the same extent that you are hoping, despite low interest rates, perhaps the much higher real interest rate we have in Sweden in relation to our most important export countries nevertheless makes a difference. What is your view of the difference in real interest rates?

Edward linderoth (13:59)

Reply: The difference in real interest rates is not so great. Unlike many countries in the EMU, we do not have any problems in the banking sector. It is easier to borrow here than in many other countries. We believe that investment will pick up when exports increase and that this will happen this year and even more so in 2015.