Chat with Stefan Ingves 22 October 2009
Governor Stefan Ingves chatted in Swedish on the Riksbank's website. This is a translation into English of the questions and replies.
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Won’t correct long-term investments be put at risk with such a low interest rate as we have? It gives a false sense of security. micke
Reply: To be clear on this issue, we also publish a forecast for the interest rate path. There you can see that the interest rate will approach a normal level of around 4%. Everyone, companies and households, can take this into account in their calculations when considering longer-term investment.
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Hello Stefan! Has the Riksbank always been around? If not, how were interest rates decided before? Karin
Reply: The Riksbank has existed since 1668, prior to that it was mainly the issuing of coins made of different metals that affected interest rates and prices.
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Hello, the low interest rate gives Swedish industry a competitive advantage. How does the rest of Europe view the Riksbank’s actions? Do you receive criticism for dumping interest rates below the ECB’s level? Is there pressure to raise them, etc.? Tomas in Malax
Reply: We conduct monetary policy adapted to Swedish conditions, and everyone is aware of this.
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Why is consumption being stimulated when the reason for the current crisis is over-consumption? Wouldn't it be more sensible to pay off debts and cut your coat according to your cloth? Simon
Reply: The crisis did not arise in Sweden this time, for instance, exports have fallen heavily and we then need to compensate for this with a higher rate of consumption to keep the economy going. We already have a high level of saving in Sweden, so supporting consumption does not lead to any problems.
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Isn’t the extremely large derivative market a major risk to an economy? It involves sums as large as countries’ economies. micke
Reply: The derivative markets are slightly unusual, but they are not a danger in themselves, as long as all of the parties concerned understand what they are doing.
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Hello Stefan! What has led you to choose 0.25% and not 0% or 0.50% for the repo rate? To the uninitiated there isn’t much difference as they are all extremely low interest rates. If there is a major difference and it is important, why can't you choose, for instance 0.37%? /SStefan A
Reply: The current interest rate of 0.25 % is the most appropriate for managing both inflation and economic developments.
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There are lots of articles about how once you start raising the repo rate again you will do it aggressively. How much can you raise it at a time? What is the most you have raised it by in broad historical terms? Carolina
Reply: Interest rate adjustments are governed by economic developments. There are no set rules for this, but in normal circumstances interest rate changes are made gradually. In autumn 1992 the interest rate was raised to 500% to defend the exchange rate, but that is an entirely different story!
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Do you have standard responses to all of the questions? Conny
Reply: No, not at all, I am taking one question at a time.
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When is your next decision on the repo rate? Lina
Reply: The next monetary policy meeting is on 15 December.
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Do you think it is worth replacing the entire banknote series? Won't Sweden soon need to adopt the euro? Emma
Reply: Whether or not Sweden adopts the euro is a political issue and not determined by the Riksbank. The banknote series needs to be replaced as we have had the same notes for a long time and they need to be modernised.
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Why do the banks go on about raises all the time christer
Reply: You should ask them about that, our forecast is that the repo rate will remain at 0.25% until autumn 2010.
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According to Statistics Sweden, inflation not including lower loans and interest costs is 1.4%, so the only reason there is deflation is because you yourselves have brought down the CPI by cutting interest rate costs. Doesn’t this mean that there is a strong underlying inflationary pressure that will be revealed when your interest rate cuts no longer have a deflationary effect on the CPI? So my question is: Won’t a higher interest rate in the future raise inflation as interest expenditure that is now giving deflationary pressure will then give inflation instead? Or how does the interest rate part of the CPI work. Henrik Ingwall
Reply: When the interest rate rises, the CPI also rises as interest rates are included in the CPI, but this effect disappears after a while so it evens out over time. If one looks at the CPIF (that is, the CPI excluding interest rates) one can see that inflation should be fairly close to the target in a few years' time.
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Hello Stefan, the signals given by the extremely low interest rate mean that individual saving seems unnecessary, but taking on large loans appears attractive. What will this lead to? Stig W, Uppsala
Reply: At the moment the most important thing is to stabilise the economic recovery, as it is important to have a low interest rate to facilitate consumption and investment.
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If it has been 3% for many years does that mean we have to have 1% for many years to compensate? micke
Reply: No, it doesn’t work like that, we always aim for inflation to be around 2% a few years' ahead, regardless of whether we are above or below 2% at the time.
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Will the inflation target remain at 2% on average a year in the future? micke
Reply: Yes, we have had an inflation target of 2% for a long time, and intend to continue with this.
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Why should thrifty Swedes pay for over-mortgaged consumers and the banks’ crazy lending? When will there be some reward for being thrifty and not living beyond one’s means? Conny
Reply: To ensure good economic growth at the moment we need to support consumption and investment through a low interest rate. This is good for everyone. In the slightly longer term it is good if saving does not become too low, but at present there is no danger.
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Why don’t you make common cause with the rest of Europe and have the same interest rate as the EC? The situation isn't any worse in Sweden than in Finland, for example. I think it’s mean. Jonathan
Reply: We conduct a monetary policy that is adapted to Swedish conditions and we have no reason to give special consideration to the ECB or anyone else.
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Hi. How are things going with the new banknotes? Will we get a 200-kronor note? Will of the banknotes have a new appearance? Martin
Reply: We have a proposal, but the decision has not yet been taken. The idea is to gradually replace the whole banknote series.
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Have you given consideration to the increase in house prices when determining the repo rate path? Robin
Reply: Yes, we have. But house prices are only one of many factors that affect how we set the interest rate.
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Hello Stefan, in the press release it says that four of your colleagues on the Executive Board entered reservations against various issues. Do you as Governor have the possibility to enter a reservation or do you always vote with the majority in your capacity as having casting vote? Lennart Elofsson
Reply: The rules regarding reservations are the same for all members of the Executive Board, including me. So far I have not entered any reservation but I have used my casting vote on a few occasions.
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Where will the money come from to replace the SEK 300 billion you are fattening the banks with, when the loans mature in less than a year’s time? Johan
Reply: The loans are a complement to our monetary policy to keep interest rates low for households and companies. When the loans mature the situation should have normalised and the banks will be able to borrow in the markets.
