Chat with Stefan Ingves 28 October 2014

• Hi! How can you increase indebtedness further? Why aren’t you at the same time taking measures to prevent house prices from rocketing? If the repo rate is cut to stimulate investment, measures need to be taken at the same time with regard to mortgages or regulations on the housing market (amortisation, tax deductions, etc.). It is the responsibility of the Riksbank to implement these measures to that economic situation does not worsen.  PS – why can’t one have different interest rates for different types of loan or borrower, why only one policy rate?

Joachim Garmer (13:32)

Reply: Quite right, other measures need to be taken to deal with mortgages. This includes, amortization, the right to tax deductions and so on. However, those decisions are not made by the Riksbank, but by other authorities, the Government and the Riksdag (the Swedish parliament). Different interest rates would not work. It would then be profitable to borrow on one market and lend on another. We tried this a long time ago in Sweden and the whole system collapsed. 

• Are prices of tenant-owned apartments and houses included in inflation? If not, why not? We have had an enormous increase in housing prices, which is a large household expenditure.

Martin (13:33)

Reply: No, it is not up to us to determine how the CPI should be composed. This is done by Statistics Sweden.

• How long do you think the new interest rate will hold?

kalle (13:34)

Reply: Until around the middle of 2016.

• Well, I heard the good news about 0% interest rates. Can I borrow now to buy a house

Daniel (13:38)

Reply: It is important that one knows roughly how much prices will rise. This makes it easier to plan one’s own finances. If prices were to fall, it would be more profitable to wait before making purchases, then economic activity would come to a standstill and economic development would be hampered.

• Hi Stefan, how long does it take after a repo-rate cut until the effects are seen in the Swedish economy?

Carl (13:40)

Reply: We usually assess that the maximum impact is felt after one to two years. But one should also remember that we have already cut the rate several times this year, so the overall effect does not just concern today’s decision to cut the repo rate.

• Hi Stefan, you usually say that the Riksbank is an independent central bank, can or may the prime minister or finance minister influence the Riksbank’s decisions on the repo rate?

Göran (13:42)

Reply: No, they are not allowed to do this. There is a ban on instructions. We are not allowed to ask for advice and nor are we allowed to take instructions when we set the repo rate. It has never happened during my years at the Riksbank.

• In an open global market, the Riksbank in Sweden is not able to influence the development of prices of goods by means of a policy rate. Don’t you agree?

Gunnar (13:44)

Reply: Even goods that are imported contain a large percentage of wage and distribution costs that are influenced by monetary policy in Sweden. However, we cannot always compensate 100% for what happens on the international markets.

• The forecast on your website indicates that Sweden may have a negative repo rate. Could this happen?

Magnus Olofsson (13:45)

Reply: It is not something we envisage, but it is technically possible.

• Will the banks’ mortgage rates also fall by 0.25%?

Lionel (13:46)

Reply: Difficult to say. It is the banks that set their mortgage rates and they may not follow immediately or even by as much.

• Hi Stefan Ingves! You at the Riksbank usually say that a normal repo rate is between 3.5%-4.5%, with today’s cut to 0% the repo rate is a long way from this, does the normal level still apply?

Magnus (13:47)

Reply: Yes, the normal level still applies. At the moment we have a very unusual economic situation and there is no reason to believe that the level of a normal repo rate has changed, even if it takes many years until we get back to it.

• Hi! Why does the Riksbank use the CPI instead of core inflation? The FED seems to have very positive impressions of using the latter instrument as it excludes temporary shocks and seems to better describe the real underlying inflation rate.

Olle (13:51)

Reply: The CPI is the best-known measure of developments in prices in Sweden, but prior to our decisions we also look at many other measures of inflation. At the moment we use the CPIF quite a lot, this is the CPI with a fixed mortgage rate, as interest rates have fluctuated substantially in recent years. Sometimes it is also useful to look at the CPI excluding energy, which is particularly interesting when the oil price or electricity price fluctuates a lot.

• Hi Stefan Has a central bank ever had a zero interest rate before?

Rune (13:52)

Reply: We have never had this before. In recent years, many central banks have been very close to zero. The minor nuances around zero have little significance. The most important thing is that the interest rate is very very low.

• Hi, It is often said that it takes 1-2 years before a major monetary policy measure, like the one today, has a full impact. Why is this? And how can one know this for certain? Market rates, productivity, inflation and employment can be affected by all sorts of things during such a long period, including more recent monetary policy decisions. In addition to this question linked to a common but rarely-proved assumption, I wonder what Finansinspektionen (the Swedish financial supervisory authority) and the Government need to do to restrain household borrowing?

Micke We (13:55)

Reply: When the repo rate is changed, it takes time before many companies and households change their behaviour completely. This is why the maximum impact is not felt right away. Each individual must decide how to deal with the new economic situation.

• Hi Stefan, how is the Executive Board of the Riksbank affected by the political uncertainty after the election?

Per (13:56)

Reply: No!

• Why is it good to have higher inflation? If prices fall, we will have greater purchasing power or is this not the case?

David (13:58)

Reply: That is true, but then it will also be profitable to wait until tomorrow or even further ahead before making purchases. Then economic activity will come to a standstill and unemployment will increase. This is a scenario that is not good for anyone really.

• How do you view the risks linked to high household indebtedness and the possibility of a housing bubble? What effect might a zero interest rate have on these?

Henrik G (14:01)

Reply: A zero interest rate makes it cheaper to borrow. This must be counteracted by, for instance, demanding larger amortization and/or reducing the tax deductions for interest so that households do not borrow as much.