Chat with Stefan Ingves 3 September 2015

Thanks for all your interesting questions! Now I have to continue with my other duties this beautiful autumn day.

Regards, Stefan Ingves.

• You open a paragraph in the press release by saying "It is important that inflation continues to rise and come closer to 2 per cent". Is it important because the Riksdag has set it as a target or is there some fundamental law of nature that creates a better society through this target, as compared with having 1% instead? Erik R (13:32)

Answer: No, you can't make a calculation to prove that 2 is better than 1, but 2 is just enough to reduce the risk of periodic deflation, i.e. falling prices. Many other central banks also have 2. But at the end of the day, it's a matter of judgement.

• Hi Stefan. What would have to happen in the Swedish economy to make you not cut the repo rate again later this year? Magnus (13:33)

Answer: Our forecasts would have to be correct as regards the economic development of both Sweden and the rest of the world. Inflation prospects, in particular, are important.

• Hi Stefan. You and many others are warning of the risks of households' increased indebtedness but who's going to shoulder the responsibility and do something? Patric (13:35)

Answer: Under the current regulations and allocation of roles, this is primarily the responsibility of Finansinspektionen, the Government and the Riksdag. Of course, almost equally importantly, it's a matter for both the banks and households themselves.

• Hi Stefan. The Riksbank has long said that a normal repo rate level should be between 3.50–4.50%. Do you think that we'll have a normal repo rate within the foreseeable future? Carl (13:36)

Answer: No, not in the next few years. It won't happen until after our normal forecast horizon, which is 3 years.

• Hi Stefan. Was the repo-rate decision affected by China's economy, for example? David (13:38)

Answer: Not to a great extent, but we have a cautious (low) forecast for the economic development of China and, of course, this plays a certain part in our overall international assessment.

• Hi Stefan. You have long experience of monetary policy. What's been your biggest challenge? Patric (13:39)

Answer: Shifting between normal circumstances and pure crisis management. The latter is a very special job.

• Hi Stefan. What does it mean that the Riksbank is an independent Riksbank? Sven (13:41)

Answer: That it is the Executive Board of the Riksbank that sets the repo rate and we do this completely independently of what those around us think of the issue. This means politicians as well as everybody else.

• Hi Stefan. Why does the Riksbank have a gold reserve and a foreign currency reserve and how large are they? Göran (13:43)

Answer: Sometimes we need to purchase or sell currency, so that means we need to be prepared to cope with this. Swedish banks in difficult situations may also need foreign currency that we can provide. It's a kind of insurance. We need foreign currency in good times so we can use it in bad times. The foreign currency and gold reserve is now worth about SEK 470 billion.

• Hi Stefan. Normal Swedes probably think that low electricity and fuel prices are something positive, but what do you think? Kent (13:45)

Answer: We think so too, but, over the short term, they lead to lower inflation than we would otherwise have. If these prices remain low, inflation will rise after a while anyway.

• Hi Stefan. The Swedish people are using less and less cash but can Sweden become a cashless society or is cash necessary? Bengt (13:46)

Answer: As far as we can see, we will have cash for a long time to come, but most probably to a smaller extent that previously. We don't expect cash to disappear completely.

• Hi Stefan. How much longer is your mandate as Governor of the Riksbank? Personally, I hope it will be many more years. Patric (13:47)

Answer: My mandate runs until 2018.

• How large do you assess the risk is that Sweden will end up in a Japanese scenario with long-term inflation rates of about zero and declining economic activity? Maria Nordlander (13:48)

Answer: We can't see any such risk at present. Our assessment is that inflation will be at about 2 per cent in 2016.

• If Sweden's economy was a used car, would you buy it? Jari (13:49)

Answer: Yes, I would. According to our forecast, this car will be running really well in the years ahead. The oil's been changed and the engine will go from strength to strength!

• If the Fed decides to raise its policy rate, how will this affect Sweden's economy? Robert (13:50)

Answer: We're counting on it. Because it'll mean that things are going well for the United States and that's good for Sweden too.

• Hi Stefan. Correct me if I'm wrong, but aren't normal conditions a CPI of 2.00% and a repo rate of 4.00%? Jan (13:51)

Answer: Yes, more or less, but, in recent years, both Sweden and many other economies have found themselves quite far from those normal conditions.

• If you're right in your forecasts of unemployment, CPIF inflation and GDP, how healthy is it that the Swedish economy is in a position (given the central bank's loss function) that is better than the potential and that, with rising housing prices and increased indebtedness, there is a repo rate below 1% and a negative real interest rate? Cesar (13:54)

Answer: It's an unusual situation, but, if our policy succeeds, inflation will rise to 2 per cent and growth is good. After a time, this should lead to a raised repo rate, raised interest rates in general and, eventually, a positive real interest rate too.

• What's your view of quantitative easing, if the low rate of inflation persists? Konrad (13:55)

Answer: It's one of the tools we could use to a greater extent than at present if inflation doesn't pick up.

• Hi Stefan. Households' debts are now increasing faster than wages. How long will this be sustainable and what needs to be done? Can you raise the repo rate? Anna (13:58)

Answer: It's not possible to know, but, as long as debts are increasing faster than incomes, the risk will continue to increase. This applies both to the economy as a whole and to households who have borrowed very large amounts. If we take a wrong step, we know, from many other countries' experiences, that that kind of situation takes a long time to correct and, at the same time as it's happening, many individual people will suffer.