Chat with Stefan Ingves 20 December 2017
Hi Stefan. The Riksbank is allowing the repo rate to remain at -0.50%, at the same time as the CPIF has been at around 2.0% for several months. Isn't it time to start to raise the repo rate now? Patric (13:31)
Answer: No! The repo rate needs to be held at -0.5% for a while longer. We assess that the repo rate will start to be raised in mid-2018. Then inflation will remain at two per cent in the coming years.
Hi Stefan. You've worked in economics for many years - was the crisis of the 1990s the most difficult challenge you've experienced? Patric (13:32)
Answer: Yes, definitely in Sweden. Of course, I've managed all possible kinds of troubles in other countries, but the first time is always the most difficult and, for me, that was the Swedish crisis of the 1990s.
Hi Stefan. If Sweden becomes cashless in the future, wouldn't this make society more vulnerable to risks? Patric (13:33)
Answer: We'll probably always keep cash in one form or another, for contingency reasons. It's unlikely that cash will disappear completely, even if more and more payments are being made electronically.
Variable-rate mortgages usually closely follow the movements of the repo rate. This is now historically low, while many mortgages are at quite high percentages. IF you're bold enough to answer, what interest rate for a variable-rate mortgage do you think is sensible to pay as customer? Listed rates are at 1.5-2%. Fredrik W (13:36)
Answer: We don't provide advice on personal finances but, according to our forecast, the repo rate will start to be raised in mid-2018, after which the repo rate will slowly rise for the foreseeable future. What this means is that, if you take a loan, you will have to be able to cope with considerably higher interest rates than today.
It seems like there's an attitude not to amortise more than the banks demand. What's your view of this? Is it economically sustainable not to amortise your loans? Daniel A. (13:37)
Answer: It's pretty reasonable to pay back what you've borrowed. That's what I think, at least.
Hi Stefan! If you could get a macroeconomic Christmas present in the form of a trend, what would you wish for? Alexandra (13:38)
Answer: Order in the Swedish housing market. Then, households wouldn't have to borrow so much, it would be easier to find a home, and easier to move.
Hi Stefan. Can the Riksbank's repo rate deviate too much from the ECB's policy rate? Patric (13:40)
Answer: Yes, it can. Above all, divergent economic development plays a large part in this respect. However, we can't get away from the fact that we are neighbours with an elephant and, when that elephant moves, it affects us, like it or not.
When, at earliest, will the new currency (the e-krona) be issued? Anders (13:43)
Answer: It's difficult to know. Towards the end of 2018, we'll have a clearer view of what we could imagine doing. After this, we think it'll also take legislation to carry out such a project and legislation always takes time, so it'll probably be several years before an e-krona that everybody can use will be introduced.
You say that housing prices are included in the CPI via rental expenses (where we have a regulated market) and households' mortgage costs. But don't households' mortgage costs depend on the interest rate? Isn't this a circular argument or do you use a long-term average interest rate? Tage G (13:45)
Answer: It is for exactly this reason that we have the CPIF (the CPI with a fixed interest rate) as the target variable. This lets us measure price changes and not interest rate adjustments, and stops us from chasing our own tail.
Hi Stefan. Aren't we taking the increased indebtedness of private individuals too lightly? I'm thinking primarily of everybody who's taken large mortgages for very low interest rates. Don't we need to regulate this more? Jan (13:46)
Answer: I agree and, for this reason, we, at the Riksbank, have always supported Finansinspektionen's tighter amortisation requirements and loan-to-value limit.
Hi Stefan. When the Riksbank starts to raise the repo rate in 2018, how quickly do you think the rate rises will come? Patric (13:48)
Answer: We expect the repo rate to be raised at a slow pace and to be in the interval of 2.5-4 per cent in the long term, but it will take many years before we get there.
Hi Stefan. You travel a lot internationally, so how much do other central banks follow how the Riksbank is conducting its monetary policy? Patric (13:53)
Answer: Other central banks follow what we're doing in two quite different respects. Everybody follows how we set the repo rate, even if it doesn't make much of a difference for large countries. And then they also follow how we conduct monetary policy from a purely technical standpoint. Monetary policy can be 'exercised' or 'implemented' in many different ways but, at any rate, since we've had inflation targeting, we've been in the lead with things like publishing a repo rate path and minutes including individual members' names. How we do this is followed with great interest by other central banks.
If housing prices continue to fall, will you raise the repo rate as planned in the middle of next year? Michelle (13:55)
Answer: This is entirely due to what happens in the economy as a whole and what happens to the rate of inflation. Inflation of two per cent is our target. We have no target for housing prices, which only become part of the picture indirectly, via growth and the rate of inflation.
Hi Stefan! Do you agree that monetary policy is now becoming more expansionary than before, as the balance sheet is growing further (you've previously said that more balance sheet is a substitute for interest rate cuts)? Magnus H (13:58)
Answer: On one hand, monetary policy is becoming a little more expansionary in the short term but, on the other, seen over the entire period, monetary policy is largely the same. This is a matter of 'evening out' a large bond maturity in 2019 by starting to reinvest now.
Hi Stefan. Thanks for a good job in 2017 and I'd like to wish you a Merry Christmas and a Happy New Year and I look forward to the monetary policy of 2018! Patric (14:00)
Answer: Many thanks. Merry Christmas and Happy New Year to you and to everybody else interested in Sweden's monetary policy.