Chat with Stefan Ingves 3 July 2014

Many thanks for all your interesting questions. Hope that you all have a good summer! Regards, Stefan Ingves.

• Hi Stefan Ingves! Total household debt has reached almost SEK 3,300 billion and the annual rate of growth in the "Debt Mountain" is now at 5.3 per cent! Does today's substantial repo-rate cut of as much as 0.5 per cent mean that you have given up the fight against the "Debt Mountain"?

Patric (13:33)

Answer: No, we haven’t. Other measures must now be introduced, for example lower loan ceilings, reduced tax deductions for interest payments or an amortisation requirement. These are issues that we will have to live with for many years to come. The main responsibility lies with other authorities, the government and the Riksdag.

• Hi Stefan! Will mortgage rates also be lowered? Have a nice summer! Regards/Joanna

Joanna (13:35)

Answer: Probably to some extent, but it's hard to say when and by how much. In general interest rates move in line with each other, but not always at a ratio of one to one.

• How can unemployment be reduced to 5 per cent; measures and what is required from the companies?

peter sandgren (13:36)

Answer: Monetary policy can play a part. This is why the repo rate is low and we expect unemployment to fall. However, other measures that relate to the workings of the labour market are needed to achieve a more substantial fall in unemployment.

• Hi Stefan Ingves! The last time the Riksbank had what you usually say is a normal level for the repo rate of 4.5 per cent was six years ago. You're now cutting it to only 0.25 per cent and the forecast is that the repo rate will be 2.35 per cent in the third quarter of 2017! Do you still claim that a normal level for the repo rate is between 3.50 and 4.50 per cent? And when do you believe we will have that level again?

Magnus (13:39)

Answer: We are experiencing a period of unusually low interest rates in many parts of the world following the global financial crisis. This will remain the case for at least a few years to come. It is very difficult today to say whether we will return to the normal level for the repo rate in the long term.

• In a week or so I, as a saver, will have an interest rate of 0 per cent on my savings account while those who put themselves into debt will have even cheaper loans, how could things go so wrong?

Rut (13:41)

Answer: We need a low repo rate now to boost the development of the economy. This will benefit everyone. When inflation and interest rate then increase, interest rates on savings accounts will also be raised.

• Hi Stefan! You and Kerstin af Jochnick entered a reservation against the decision to cut the repo rate so much, wasn't it a thankless task to stand alone in front of the media and defend a repo rate of only 0.25 per cent when you entered a reservation against it? Have a nice summer, Stefan!

Patric (13:43)

Answer: We are in agreement about the direction of monetary policy so the differences are not so great. My job on a day like this is to describe the decision the Riksbank has made and so I do this to the best of my ability. A nice summer to you too!

• Hi Stefan! The Riksbank has now had an historically-low repo rate for a long time, why isn't inflation rising?

Anders (13:46)

Answer: At the moment we have an unusual situation in which inflation is low in many parts of the world. This affects a small, open economy like Sweden’s. At the same time, demand has also been low in Sweden. A low repo rate helps to increase demand and consequently leads to rising inflation after a while.

• Hi Stefan, it seems that a low repo rate doesn't work very well in getting inflation to rise to 2 per cent, is there anything else you can do to reach the inflation target?

Anna (13:49)

Answer: We believe that this level of the repo rate will be enough to increase inflation. If it doesn't, we can also lend money on favourable terms. Technically, this can be done in a variety of ways.

• Hi! As it is fundamentally weak demand that is the problem, don't we really need a stronger structural transformation, which lies outside the Riksbank's mandate, rather than trying to steer demand with the repo rate, which is rather ineffective? Isn't it more important for the Riksbank to control stability and perhaps attach less importance to an inflation target and instead have a band of say 0-2 per cent?

Anders Persson (13:52)

Answer: What target we should have is a purely political question. An inflation target, as we have at the moment, has worked very well in Sweden for almost 20 years now. The alternatives we had earlier did not work as well. It is also difficult to control all kinds of things in society with just the repo rate, so a rather limited focus works best.

• DO YOU REALLY BELIEVE IN LOWERING THE KRONA TO A ZERO VALUE, WHICH THESE CONSTANT CUTS MAY WELL DO?

Patrik (13:55)

Answer: We have no target for the krona, we aim to achieve our inflation target of 2 percent. Our rate-setting affects the exchange rate, but there are also a lot of other things that affect the krona. A lower repo rate may perhaps lead to a somewhat weaker exchange rate, but when economic activity improves in the period ahead we expect the krona to strengthen somewhat again.

• Which of you voted for what?

Joakim Trolöfte (13:58)

Answer: We agree about the direction of monetary policy but Kerstin af Jochnick and I preferred a cut of 0.25 percentage points. The other four wanted to cut the repo rate by 0.5 percentage points.