Chat with Stefan Ingves 4 September 2014
Many thanks for your many interesting questions on monetary policy and other matters. Now I have to go and work with something else.
Enjoy this late summer day!
Regards, Stefan Ingves.
- How will Sweden be affected if the US raises its interest rate in the autumn? They have a strong economy, almost overheated.
Peter Sandgren (13:33)
Answer: It's difficult to know with any accuracy when the US will raise its interest rate. In our analysis, we expect that the US will raise its interest rate long before this happens in Europe. The fact that the US is doing well is a great help to the improving situation in the world economy. This is positive for Sweden.
- Hi Stefan Ingves! The last time the Riksbank had a repo rate as extremely low as 0.25% was in 2009–2010. What lessons have you learned from that now, in retrospect?
Magnus (13:35)
Answer: One lesson is that financial crises create major economic problems, so financial stability is important. We also learned a great deal about how to conduct monetary policy when the general interest rate level is very low.
- Hi Stefan. At the Riksbank, you usually say that a normal repo rate should be between 3.5% and 4.5%. Now it's just 0.25%. When do you think we'll have a normal repo rate again?
Fredrik (13:37)
Answer: Our view continues to be that a normal repo rate is approximately in the interval you mention. It'll be many years before we reach that repo rate level. Our present repo rate path ends in 2017, at which point the repo rate is about two per cent.
- Hi Stefan. I'm receiving almost 0% interest on my savings, while people borrowing money are almost getting it for free. How could things go so wrong? And when do you think it'll be worth saving again?
Rut (13:39)
Answer: Just now, we need to stimulate the economy with low interest rates so that people save less and consume/invest more to bring inflation up. Once inflation has gone up, it'll start to be worth saving again.
- How big is the risk of deflation?
Linnea (13:40)
Answer: Inflation is currently low. Our assessment is that inflation is on the way up and there is no deflation ahead.
- Are the claims you hear true, that the banks are creating money from nothing by lending money? That is, that modern money is actually debt? What actually backs up the value of the krona?
Fredrik Paulsson (13:43)
Answer: Yes, banks and, not least, central banks can create money from nothing, as you put it. But the value of the krona is ultimately determined by how well the Swedish economy is working and how well we're running the Swedish economy.
- Hi Stefan. How will Draghi solve Europe's crisis? Any suggestions?
Peter Sandgren (13:44)
Answer: This is a question for the European Central Bank. I assume that they're doing their best on their end, but there are also lots of other economic concerns in various parts of Europe that the central bank can't address.
- Hi Stefan. Can the Minister for Finance urge the Executive Board of the Riksbank to keep the repo rate low or would that be classified as ministerial rule, considering that the Riksbank is supposed to be independent?
Carl (13:47)
Answer: The Riksbank is independent, so we set the repo rate entirely on our own. The law also prohibits us from taking instructions – we in the Executive Board aren't allowed to ask anybody else what we should do and nobody is allowed to tell us what to do either. We stick strictly to this rule in Sweden, so there is no question of ministerial rule at present.
- Hi Stefan. As you won't be raising the repo rate until the end of 2015, does this mean that you've given up the fight against households' increasing debt pile?
David (13:49)
Answer: Not, not at all. We're going to have more or less low interest rates for the foreseeable future. This increases the risks. So other measures will have to be adopted to restrict the increase in debt, for example amortisation requirements.
- Do you have an opinion on cryptocurrencies such as Bitcoin, for example?
Thomas (13:50)
Answer: We're monitoring developments in this area, but so far it's a very small currency with little importance for either monetary policy or financial stability.
- Hi! How big is the chance that the repo rate will be raised next year?
linus (13:51)
Answer: Our current assessment is that the repo rate will start to be raised at the end of 2015.
- What does the Riksbank actually do?
Tor-Even (13:54)
Answer: We issue banknotes and coins, facilitate large payments between banks, maintain a foreign currency reserve, maintain price stability via our inflation target of two per cent and promote financial stability so that we can avoid financial crises. If a crisis arises anyway, we can lend money to banks on special terms. We can do this in either kronor or foreign currency.
- Hi Stefan. In 1995, the Riksbank had a repo rate of 8.91%. Do you think we'll reach those levels again within 5–10 years?
Johan (13:55)
Answer: If we meet our inflation target of two per cent, there is little chance of it happening. But you can never be certain.
- Variable or fixed-rate mortgage? Which is best?
Peter Sandgren (13:56)
Answer: That’s a hard question to answer. Everybody has to decide that themselves. Borrowing at a variable interest rate involves greater risks than borrowing at a fixed interest rate.
- Hi Stefan. How big is the gold reserve at present?
Patric (14:00)
Answer: The gold reserve amounts to 125.7 tonnes, with a market value of about SEK 36 billion. The gold is stored with several different central banks around the world, but we also have gold in Sweden.
