Ingves and Skingsley in hearing on monetary policy

Date 24/09/2015

Stefan Ingves will present the latest monetary policy decision from the beginning of September, when the Executive Board of the Riksbank decided to leave the repo rate unchanged at -0.35 per cent in order to give continued support to the increase in inflation. The Riksbank's expansionary monetary policy, with a negative interest rate and the purchase of government bonds, is a major reason for stable growth in Sweden, falling unemployment and a clear upward trend in inflation. Over the last year inflation has risen from 0.5 to 1.4 per cent, if interest-rate effects and volatile energy prices are excluded. However, the increase in inflation could be jeopardised by developments abroad, and the Riksbank therefore remains highly prepared to act should the inflation outlook deteriorate.

At the same time Ingves emphasises the importance of further measures from the Government, the Riksdag and Finansinspektionen (Swedish Financial Supervisory Authority) in order to mitigate the risks linked to high household indebtedness. An amortisation requirement is a welcome, though not sufficient, step for calming down developments in the mortgage market, says Ingves. "We are somewhat behind in solving these problems in Sweden, but we have the chance to act. There are more measures to be taken. If nothing more is done then there are clear risks for very poor economic development further down the line."

In her introduction, Cecilia Skingsley discusses the effects of digitisation on inflation and says that these have contributed to holding back prices. They are not, however, the main explanation for why inflation has been low over the past few years. Global recovery has been slow, the krona strengthened significantly after the financial crisis, energy prices have fallen and it has been difficult in the uncertain environment following the crises for companies to raise prices. "Monetary policy is having an effect, however. Inflation is now rising from low levels. This shows that it is possible to bring up inflation despite digitisation."

Skingsley also highlights the discussions about whether central banks' targets should be altered. She points out that arguments for lowering the inflation target have dominated the Swedish debate, while internationally the discussion more often concerns whether the target should be raised. However, confidence is not created by adapting the target to wherever inflation is at a particular moment, says Skingsley. "Stable expectations about the general development of prices mean a reduced uncertainty factor when setting both prices and salaries in our society."

Follow the links to view the slides shown at the hearing.