Chat with Stefan Ingves 7 September 2016
Many thanks for all of your interesting questions this beautiful autumn day. Regards, Stefan Ingves.
Hi Ingves :) What happens if the Riksbank makes a loss on its bonds? Would this loss be passed on to the Treasury? Magdalena Andersson (13:31)
Answer: There would be a smaller dividend payment to the government. But the important thing for the Riksbank isn't the gain or loss made in accounting terms. The main thing is our social target of reaching the inflation target of two per cent.
Hi Stefan. Is there any conceivable scenario in which you'd have to raise the repo rate even though the CPI was below 2%? Patric (13:32)
Answer: Only if, at that point in time, it seemed entirely obvious that inflation would be much higher than two per cent later on.
Hi Stefan. Why doesn't the Riksbank use the HICP as a measure of inflation like many other countries in the EU? Patric (13:35)
Answer: This question was discussed heavily in the mid-1990s. We decided then on the CPI as it was a well-known measure in Sweden. In addition, for several decades, we discussed how housing should be dealt with in the HICP without solving the question. So, in light of this too, it turned out that choosing the CPI had been the right decision, although this is still a current issue.
Hi Stefan. When do you expect cash to disappear as a means of payment in Sweden? Magdalena (13:37)
Answer: The use of cash is declining substantially but this doesn't mean that cash will disappear entirely. We expect cash to exist for the foreseeable future, albeit to a lesser extent than today.
Hi Stefan. What 'weapons' will the Riksbank still have at its disposal when the next recession hits Sweden? Patric (13:37)
Answer: We can always cut the repo rate more and/or purchase more securities.
Hi Stefan. Is the high level of indebtedness primarily a big city problem or is it equally serious across the whole country? Magnus (13:38)
Answer: Households are more highly indebted in the metropolitan regions but it's also a fairly widespread problem outside the major cities.
Hi Stefan. The Swedish economy is strong but the repo rate is -0.50%. Can you understand that many people have doubts over how strong the economy actually is? Lars (13:39)
Answer: The economy is strong and we don't see any widespread pessimism. At the same time, international interest rates are very low. We can't do anything about that, so we also have to have low interest rates in Sweden.
Hi. Why are you continuing to punish savers with negative interest rates and inflation of 2%?
Answer: We need a low interest rate now to support general economic development and to meet our inflation target of two per cent. When we meet it, interest rates will rise again.
Hi Stefan. Lots of people are talking about the housing bubble but isn't it actually a credit bubble that could burst when you have to raise the repo rate? Patric (13:42)
Answer: Price increases and credit are connected. And absolutely, the day we raise the repo rate will be painful for many people. This is also why we always point out that the current very low interest rates are unusual.
Hi Stefan. What effects has Brexit had on the Swedish economy so far? Anders (13:44)
Answer: Minor effects so far. It's also difficult to say what's a consequence of Brexit and what's part of general economic developments.
Hi Stefan. This question might have been done to death, but is 4% still a normal level for the repo rate? Annika (13:45)
Answer: Yes, it's still a normal repo rate but, as things look in the global economy at present, it'll take many, many years until we get back to that level.
How does interest work? Shaban (13:47)
Answer: Interest is what I'm prepared to pay to consume or invest today instead of tomorrow.
Hi Stefan. Isn't it dangerous to have a negative repo rate for as long as this? Jan (13:49)
Answer: There's nothing special with a negative interest rate as such and neither are most people being charged negative rates of any type. Low interest rates (plus or minus) can lead to excessive risk-taking when it's easy to borrow, and this is something we need to be aware of.
Is -0.50% the repo rate floor? Anna (13:50)
Answer: Technically speaking, we could cut it more if necessary, but we consider that this is the most appropriate repo rate level just now.
Hi Stefan. Are there any other inflation measures besides the CPI, CPIF and HICP? Fredrik (13:54)
Answer: Yes, there are a number of different inflation measures in which various categories of goods and services are excluded. One example of another measure is the CPIFxe, which is the CPI with a fixed interest rate and excluding energy prices, which can vary greatly.
Hi Stefan. Did you manage to have a holiday this summer? Patric (13:55)
Answer: Yes, I certainly did. The summer was lovely and calm, which we can see today as our forecasts from the start of July have been confirmed, so nothing special was required by monetary policy over the summer.
Is there a limit to how many government bonds the Riksbank can purchase? Johan (13:57)
Answer: No, it's a question of judgement. By the end of the year, the Riksbank will have purchased about 40% of outstanding government bonds.
Hi. If the economy is strong and interest rates are low, why isn't inflation rising? Johan Wilson (13:59)
Answer: Inflation is actually on the way up, and has been since 2014, but, as the turnaround came at a low level, it will take until 2017 until inflation reaches two per cent.
Is your repo rate level affected by what the ECB and Fed do? Göran (14:00)
Answer: To a certain extent. Sweden is a small, very open economy and so we're affected to a degree by what the really big central banks decide to do.
