Chat with Stefan Ingves 3 September 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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Why do you hold on so hard to the CPI measure, when it is becoming obvious to more and more people that it is the increase in the money supply and the credit expansion that ARE inflation. Price increases are just symptoms of inflation. The CPI measure also seems to vary with time, you apply what are known as “hedonic adjustments”, don’t you? /Curt
Reply: The CPI is still a good measure for monetary policy. The CPI measures changes in prices better than many other measures. This applies in particular to alternatives such as the money supply or credit expansion, but it is also useful to follow these measures when we want to gain an idea of the future development of the CPI.
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Is it right to retain such low interest rates? Wouldn’t it have been better to let the recession take its course and let the economy correct itself? Why does the Riksbank want to manipulate this correction? /Michael K
Reply: If we hadn’t done anything unemployment would have been even higher, we would have been even further below our inflation target and both of these effects are damaging to the economy. And thus to society.
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Hello! What do you consider to be a reasonable borrowing rate on a 3-month loan for a bank today. If you don’t want to give an exact percentage, then a small interval would do. Will the interest rate remain constant or could it fall despite the repo rate remaining unchanged? /Josef
Reply: We don’t have any views on individual banks’ borrowing costs. The monetary policy we conduct contributes to ensuring that borrowing costs in Swedish kronor will be held at a fairly low level, but they can vary from one bank to another.
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Many households are no longer calculating home loans on the basis of paying back the loans over a 20-30 year period, they are borrowing according to what they can manage to pay off every month. I can manage a mortgage rate of around 15% and I base my calculations on the amortisation period, but I refuse to bid against people who make calculations on the basis of a 5% mortgage rate and just live from day to day. At what level will the repo rate peak in the next interest rate cycle and is a repo rate of around 10% possible? Wouldn’t it be healthy to push up interest rates and reduce indebtedness even if it proves painful during a transitional period? As I see it, we are only postponing the problem and making the interest rate weapon less useful the next time we need it. /Johan
Reply: It is not possible to make predictions now of when the interest rate will peak in the future. A normal repo rate level is around 4 per cent.
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Hello! How important is the development of the real economy in your assessment of the interest rate level? /Ellinor
Reply: Of course developments in the real economy are important, they govern inflation, demand and employment. These three variables are all important to the shaping of monetary policy.
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Aren’t you afraid we will experience moral hazard now that you are more or less promising to keep interest rates so low for so long? I have mortgaged my equity portfolio for the first time since 2006 and bidding on houses is soaring once again. I hope you don’t just read reports in the bathtub... /Daniel
Reply: We want to be as clear as possible with regard to our views on future interest rate developments, and the interest will be raised eventually. If developments do not turn out as we have predicted, we will have to take the consequences as reconsider earlier decisions. No, I don’t read reports in the bathtub as it makes the paper wrinkle.
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How does the Riksbank view its task, according to your website the Riksbank has the task of ensuring that the Swedish krona retains its value, why then has everything become 50% more expensive since the 1990s? Is this really a healthy way of maintaining the value of money? /Michael K
Reply: One can define "maintain price stability" in many different ways. We have chosen to do this in the form of our inflation target, which is 2 per cent. Measured in this way prices will rise slowly. This is a policy we consider has been successful, particularly if one compares it to earlier times when inflation was much higher.
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Hello Stefan! How much of a problem is it that the banks have higher margins than ever now, if one compares the repo rate with their lending rates? /Economics student at the Stockholm School of Economics
Reply: If we had not done anything the margins would probably have been much larger. The margins have also declined over the past year. It is our opinion that our various lending measures have had a positive effect.
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With regard to the recovery in the Swedish economy – apart from the risks already mentioned in your main scenario, such as the Baltic countries and a faster recovery abroad than expected, what factors would be most decisive in whether Sweden shows a weaker or stronger recovery than, for instance, the eurozone and the USA (e.g. is there any particular part of GDP that will be important over the coming period)? /Ylva
Reply: Sweden is a small, export-dependent country so developments in world trade, in either direction, have considerable significance for us. We also have a large financial sector that is to some extent dependent on what happens in the financial sector globally, so these developments, whether positive or negative, also affect us.
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You admit that both international and domestic data have improved, as have financial values. You also revise up most of the forecasts. This seems reasonable. However, I do not understand how the interest rate can remain unchanged when this is happening. You had an alternative scenario that appears to coincide better with current developments? /Fredrik
Reply: It is still the case that the economic upturn is not sufficiently strong for us to change the interest rate path. Inflation is also low, which means the inflation target does not give any reason for changing the interest rate path, either.
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Isn’t there a large risk of increased inflationary pressures now that most of the world’s central banks have the money printing presses going? How does the Riksbank plan to face this together with other central banks /Gunnar Strängare
Reply: No, I don’t think so. With the concerns in the financial sector and the world economy at the moment some more money is needed to keep things running smoothly. When the situation normalises again, we and other central banks can withdraw this money again. Technically these kinds of transactions are not difficult.
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Do you see the appreciation of SEK as a "problem" for future rate hikes? /Simon
Reply: No, the exchange rate is not a problem. We have an inflation target with a floating exchange rate. Hence the krona varies up and down without significantly affecting monetary policy.
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Hello, what does Sweden’s national debt involve. Is it a debt to the Riksbank or to foreign banks and financial institutions? In what way is the debt repaid and when is this done? /Martin
Reply: It is not a debt to the Riksbank. Government bonds are held by many people in Sweden and in that sense it is a debt to ourselves! Other bonds held abroad are a debt to others.
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Despite having sold off parts of the Swedish people’s gold reserves, you probably still have quite a lot of gold left. Do you consider gold to be money or a commodity, as you continue to hold gold in the reserves. (You don't have any oil or copper or so on) /Peter
Reply: At the Riksbank gold is comparable to other securities, that is, fairly like money. We are not involved with any other commodities.
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Hello! I have just bought a large apartment on my own and thus have a relatively large mortgage. When would you want to see the policy rate reaching a “normal” level, which I have understood to be around 4.25%? /tina
Reply: With the assessment we are now making, the interest rate will be around 4% at the end of 2012.
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Hello. Do you believe that the appreciation of the krona will continue during the autumn? Has the Riksbank had an unofficial target of keeping the krona weak during the crisis to strengthen exports? /Jonathan Holgersson
Reply: No, we do not have a special target for the krona, but small currencies like the Swedish krona traditionally weaken in times of unease or crisis. An expansionary monetary policy normally entails a low interest rate, which in turn may affect the exchange rate.
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Hello Stefan, I am a poor guy who has managed to win SEK 200.000, could you tell me what I should do with the money, shares funds? /Tommy
Reply: Congratulations! But I don’t give financial advice.
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Hello. Isn't there some risk with having a low interest rate over a long period of time? That people will “get used to” a low interest rate and borrow more than they can actually afford? Is there a risk of a new crisis in Sweden when the interest rate is raised because of this? /Anders
Reply: It is important to push up employment and production, but at the same time it is also important that everyone carefully considers what risks they are prepared to take as the interest rate will not be low for ever.
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How can “100 new billions” plus maintaining a low interest rate help to keep inflation down? /Anxious
Reply: At present inflation is below the target of two per cent, the loans and the low interest rate are aimed at increasing demand in the economy so that we can bring up inflation to our target level of two per cent. At the same time, the monetary policy conducted also has an effect on GDP and employment, that is, we are helping to get Sweden out of the serious economic downturn.
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History shows that there is a time lag between a change being made in the interest rate and its effect on inflation. If one looks at the CPI on Statistics Sweden's website between 2004 and 2008 one can see a clear upward trend during this period, but nevertheless the Riksbank chose not to raise the interest rate to a reasonable level until the CPI had risen above around 3% in 2008. This seems like reactive behaviour where one has disregarded the trend. How does the Riksbank think, now that the CPI is about to rise? I hope that you won’t wait to raise the interest rate until the CPI is 2%, but will raise it when the trend points upwards. /Johan
Reply: Our assessment is that the interest rate will not need to be raised until a year from now as inflation is currently very low and the economic downturn has not completely passed. It will also take time before all of the Swedish economy has normalised and it is therefore good to keep the interest rate at its current level.
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Have you considered changing the measure of inflation? For people who don’t have mortgages inflation (food prices, rents) are well above 2%. /Jenny
Reply: No, our inflation target expressed in terms of the change in the CPI is a good measure as the CPI is so well-known and it captures what is happening in the Swedish economy.
Why hasn’t the foreign currency reserve been used to try to reduce the large fluctuations in the krona’s exchange rate? When you read about the foreign currency reserve on the Riksbank's website is says that this is one of the things it is used for. /Carl
Reply: We have long had a floating exchange rate and we have no good reason to intervene on the foreign exchange market. Our experiences of fine-tuning the exchange rate are not very positive. The inflation target works better.
