Chat with Stefan Ingves 2 July 2015

Many thanks for all of your interesting questions about monetary policy and other matters concerning the Riksbank's activities. Enjoy the warm summer weather, now it's finally here.

Regards, Stefan Ingves.

• Hi Stefan. You say that you could lower the repo rate below today's level. How low would that be? Could you lower it to -1.00%? Magnus (13:30)

Answer: In a purely technical sense, it wouldn't be difficult to lower the repo rate to -1 per cent. But whether we'd want to do that is a completely different matter. Our assessment at present is that the repo rate won't go as low as -1 per cent.

• Hi Stefan. The CPI has started to rise, so why are you lowering the repo rate more? Anders (13:32)

Answer: It's positive that inflation is now rising, but, in the uncertain world we live in, we'd rather do a little extra so that we can be sure to get inflation up to 2 per cent.

• Hi Stefan. Some economists say that a prolonged low repo rate will create bubbles in the economy. What's your feeling about this at the Riksbank? Marie (13:34)

Answer: Yes, rising asset prices (such as housing prices) are a risk that exists, but just now we need to do this to bring inflation up. The risk I'm talking about could be dealt with through amortisation requirements and/or lower tax deductions for interest-rate payments, for example, but these are measures that the Riksbank doesn't have any control over.

• Hi Stefan. How is monetary policy in Sweden being affected by the situation in Greece? Fredrik (13:37)

Answer: The direct economic links between Sweden and Greece are minor but the problems in Greece are causing uncertainty over the recovery in Europe, which could also affect us. This is one factor affecting monetary policy in Sweden and we're very much prepared to do more if necessary.

• Hi Stefan. Does today's cut mean that the Riksbank has the lowest policy rate in Europe? Or are there countries with even lower policy rates? Rut (13:38)

Answer: It depends a bit on how you measure it, but policy rates in both Denmark and Switzerland are presently even lower than ours.

• Hi Stefan. At the Riksbank, you've long been saying that a normal repo rate level should be between 3.50% and 4.40%. Is it time to change that now? Lars (13:39)

Answer: No, not yet, but it will be a long time until we're back at that interest rate level.

• Hi Stefan. If, against all expectations, inflation were to rise rapidly and strongly, would you dare to raise the repo rate towards normal levels, considering how many households have borrowed too much during this period of low interest rates? Kent (13:42)

Answer: Ahead of us, we can see a situation with strong growth and a rate of inflation of around 2 per cent in 2016 and after, with a continued low policy rate. If developments should turn out to be something completely different, then, yes, we wouldn't hesitate to raise the interest rate, if necessary – but, as I said, this would be a different development than the one we can see ahead just now.

• Hi Stefan. If the major banks introduce negative interest rates on their savings/bank accounts and their customers withdraw large amounts of cash, would the Riksbank have large enough cash reserves? And has the amount of cash in society increased so far this year, compared with last year? Björn (13:43)

Answer: Yes, we do. We have enough stored!

• Hi Stefan. I'd like to continue using cash to make payments. How much longer will I be able to do this? I hear so much talk about the cashless society. Bertil (13:44)

Answer: In all likelihood, as long as you like. The development of new types of payment doesn't mean that cash will disappear. On the other hand, it may be that cash won't be accepted absolutely everywhere.

• When do you expect interest rates to start rising again? Eleonor (13:45)

Answer: According to our forecast, the repo rate will be raised slowly during the second six months of 2016.

• Hi! What will the lowered reference rate mean for the mortgage rate? Could you say that the mortgage rates from the banks should be lowered by 0.10 per cent in line with the cut made to the reference rate? Sara (13:46)

Answer: The most probable outcome is that mortgage rates will fall a little. At the same time, they don't match precisely – but, over a longer period, mortgage rates follow the repo rate well.

• Hi Stefan. How often do you review the target of 2% inflation? Or is your assessment that this target will apply for a long time to come? Erik (13:47)

Answer: We think that 2 per cent is a good and suitable level and it has applied since the mid-90s. I can't imagine that conclusion changing in the foreseeable future.

• Hi Stefan. Are there any further tools (apart from the ones the Riksbank has at its disposal today) that could be used to reach the inflation target more quickly? Please give an example. Erik (13:50)

Answer: We could cut the interest rate more, we could purchase more government bonds, we could purchase other types of bond, we could lend money directly to the banks and we could purchase foreign currencies and pay with Swedish kronor. In other words, we have a pretty big toolbox allowing us, one way or another, to create more money or steer the price of money, which is to say the interest rate.

• Hi Stefan. You have long experience of monetary policy. Is it more difficult to conduct monetary policy today than it was during the financial crisis, the crisis of the 1990s or any other crisis? Patric (13:52)

Answer: Hmmm, it's hard to compare them – each period had its problems. Back then, we had a fixed exchange rate and the interest rate went all the way up to 500 per cent. Now we have a floating exchange rate and inflation targeting, at the same time as the repo rate is negative.

• Hi Stefan. The Riksbank is warning us about household indebtedness at the same time as you're cutting the repo rate so that it's even cheaper to borrow. Could you explain your reasoning? Christer (13:55)

Answer: Just now, we need to get inflation up to two per cent and we can deal with this matter directly through monetary policy. But somebody else will have to tighten up the mortgage market. This could be done, for example, by introducing a meaningful amortisation requirement, removing the right to deduct interest expenses or otherwise making it more difficult to borrow. What's needed is thus a combination of measures to simultaneously manage both the inflation target and the overheated mortgage market.

• Is the Riksbank satisfied with the way inflation is measured at present? Karl (13:59)

Answer: Our inflation target is expressed in terms of the CPI. We also look at several different measures (CPI, CPIF (inflation without interest rate changes)), but we also have a number of other measures. At the same time, you have to bear in mind that all measures have both advantages and disadvantages. But the CPI has worked well for many years now and I think it will also continue to do so in the future too.

• The Swedish krona has depreciated a good bit against the Norwegian krone recently. Is this at all relevant to your monetary policy? What NOK/SEK exchange rate do you consider to be reasonable or desirable? Daniel W (14:01)

Answer: Inflation effects via the exchange rate come from many different currencies, so SEK/NOK alone is not a variable that is particularly important to us.