Chat with Stefan Ingves 12 February 2015

My warmest thanks for your many, many interesting questions. Now I have to deal with some other assignments. Have a good day.

Regards, Stefan Ingves.

• The lowered interest rate and the lower krona exchange rate against all the other strong currencies have only led to manufacturing industry leaving Sweden etc. for Asia. The only thing that can get Sweden's economy going is not consumption using money people don't have but jobs and investment with real money. Will 0.1% really make a difference when the interest rate has already been too low for so long?
Patrik (13:31)

Answer: It makes some difference compared to the repo rate of zero that we had before. Above all, it's a signal that we're prepared to do what it takes to increase inflation.

• Hi Stefan. Several major banks have warned that they'll introduce negative interest rates to their bank accounts now that you've lowered the repo rate to a negative figure. This will mean massive cash withdrawals by bank customers. Has the Riksbank enough cash for the banks?
Patric (13:31)

Answer: Yes, we do.

• Will there be a negative interest rate on the money people have in the bank?
bengt (13:34)

Answer: The banks will decide this themselves, but I don't think this should be the case under the slightly negative interest rate we now have. The banks will have to pay about 100 million kronor to deposit money with the Riksbank. This isn't a great amount if you consider that the banks earned about 80 billion last year.

• What measures will the Riksbank adopt if this interest rate isn't enough to increase inflation? An even more negative interest rate?
Lennart Sundstedt (13:35)

Answer: The important thing is to get inflation up. So we could cut the interest rate more, defer interest rate increases, buy many more government bonds or lend more money to the banks.

• Hi Stefan Ingves! How large is the Riksbank's cash reserve?
David (13:36)

Answer: This is something we don't discuss.

• Hi. About the bonds that the Riksbank purchases – does the Riksbank earn interest from the government on these and report it as revenue on its income statement? What happens when bond purchases are concluded? Will the Riksbank then sell them back on the market in a few years or will it retain them until maturity?
OS (13:37)

Answer: Interest income forms part of our earnings. The current plan is to retain the bonds until maturity.

• "In addition, there is the possibility of a programme of loans to companies via the banks." Could you be more specific about how this will happen?
Hugo Kjellin (13:39)

Answer: It's too early to go into this in detail. We'll specify how it may happen in the near future. The important thing here is that lending from the banks increases and goes towards investments in the corporate sector.

• You emphasised the risks outside Sweden's borders. You mentioned Ukraine, oil and other things. And that the Riksbank must have tools in readiness. Is it a possible major war in Europe that you're worried about? Or the total collapse of Russia?
Olle (13:42)

Answer: There is turbulence in Europe. In the area of economics, there is still a lot to do elsewhere in Europe. In addition, several central banks have cut their interest rates and monetary policy is moving in different directions in the United States and in the EMU. Currencies are moving quite a lot and the financial markets are fluctuating more than previously. All of this creates uncertainty over exchange rates, inflation and growth.

• Hi! What positive effects will rescue purchases of bonds have on the economy? For a novice, it's hard to tell the value of SEK 10 billion. Is that a lot or a little in this context?
Tommy (13:45)

Answer: SEK 10 billion is a little in this context. When we purchase government bonds, they increase in price, their rate falls, and we pay with new Riksbank money which, in turn, will converted to allow consumption and investments. Signalling that we can purchase much more if necessary is also important. This keeps interest rates low and creates rising inflation.

• What was your main reason for lowering the repo rate to -0.10?
PBpax77 (13:46)

Answer: Getting inflation up to our inflation target of two per cent. It will also get the wheels of the economy to spin a little faster.

• Why can't we have one policy rate for companies and one for private individuals? This would allow us to create more jobs at the same time as counteracting "housing bubbles".
Henrik Jansson (13:49)

Answer: This is more or less how we tried to get things to work in Sweden long ago, but it wasn't any good. Among other things, it was possible to borrow cheaply in one sector and then send the money on to your household anyway. It's very difficult to maintain completely different interest rates in the long term in our kind of economy.

• What is interest? xDD
Marcus Eneström (13:50)

Answer: Interest is the price of money. It's what you're prepared to pay to get access to money/consumption today instead of tomorrow.

• Hi Stefan. Why is it so important to have an inflation target of 2%? It's never going to happen. Why not lower it to 0.5%? This would reduce increased loans and credit.
Ossar Fredrik (13:54)

Answer: When you have falling prices over the long term (deflation), it pays to defer consumption and investments until later. This leads to unemployment and major economic problems. Considering this, 0.5% is too close to zero or negative inflation. So 2% is better. This puts you at a respectable distance from zero inflation, negative inflation and economic concerns.

• Aren't you worried that this will all end in a financial crisis à la 1990s, with growing debts, rising asset prices, but no real growth in the underlying economy?
Jacob (13:57)

Answer: At present, it is vital to increase demand and inflation and improve growth. Back then, in the 1990s, the reverse was the case. Inflation was high and fluctuated widely. But sure, in the current very low interest rate situation, there are good reasons to carefully monitor the development of different asset prices. What's happening on the housing market is an example of this.

• Hi. Do you think this will lead to a fall in mortgage rates?
Nils (13:58)

Answer: Most likely, as interest rates follow the repo rate quite closely.

• Why do we need a Riksbank? Can't the market decide the value of money?
Clint Dyning (14:01)

Answer: That would give us lots of different currencies, so-called local currencies. And they would also have very different values. Having a Riksbank as standard-setter which ensures that the value of money is maintained works better to create good conditions for economic activities.