Chat with Stefan Ingves 21 April 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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Do you think that Sweden should switch to the Euro?
Fredrik
Answer: This is essentially a political question. The Riksbank adapts to political decisions.
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If we were to raise the repo rate by 1% today, what would the consequences be? Thanks in advance!
Mikaela Pal
Answer: Inflation would fall even further below the target of 2% and growth would be even worse.
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As the Riksbank has an expected future inflation target and, through the low repo rate and forecasts via the yield curve, has stimulated export companies in Sweden through interest-rate cuts for some time now, how do you plan to get the economy moving for the "importing sector"? What's your strategy for increasing the value of SEK to ease conditions for Sweden's badly-impacted import companies?
Kristoffer
Answer: The role of monetary policy is to steer general demand in the economy. We don't have any particular focus on either import or export companies.
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Hi Stefan. What do you expect next year – when do you think the Riksbank will raise the interest rate? Regards, Bosse.
Bosse A
Answer: As far as we know at present, the repo rate in 2010 will remain at approximately the same level as it is today.
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What advantages and disadvantages do you think there would be in having a growth target as a complement to the inflation target in Sweden?
Ludvig
Answer: One target (the rate of inflation) and one means is what works best. At present, monetary policy also supports growth.
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Do you consider that the Taylor rule is a good tool for analysing monetary policy?
Andreas
Answer: The Taylor rule is one tool among many, neither better nor worse than the other tools. Ultimately, it is the judgement of the six members of the Executive Board that is decisive, not any specific rule.
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When will more information on the upcoming banknote and coin series be presented?
Fredrik
Answer: It's most likely that more information on this matter will be ready later this spring.
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What's your view of the steep depreciation of the krona in recent months? Is this the price that has to be paid to save the property market, bank lending and possibly the export industry?
Markus Jalmerot
Answer: In a small, open economy such as Sweden's, we have to expect that the exchange rate will fluctuate quite a lot in times of turbulence. This also applies to a number of other countries. We expect that the krona will appreciate later on.
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Hi Stefan! When do you think that we'll have passed this crisis, and will see GDP increase and unemployment decrease?
Daniel Anderssson
Answer: According to our forecast, GDP will increase slowly in 2010, and unemployment will start to fall in 2011.
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Why is the Riksbank selling gold?
magnus
Answer: Because, for a long time, we've had too much gold in the foreign exchange reserve and need to invest in other assets.
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Last week, Axel Weber, a member of the ECB Governing Council, said that there would be a risk of a standstill on the interbank market if the ECB were to lower its policy rate below 1%. What's your comment on this, transposed to Swedish conditions?
Flute
Answer: This is an issue we will analyse further. Considering the low repo-rate level we have at present, we will focus strongly on the functionality of the markets in the period ahead.
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Hi. What's the Riksbank's forecast for the exchange rate over the rest of the year, and what effects can we expect to see on the interest rate?
BK
Answer: We expect the krona to appreciate and the repo-rate to remain fairly still.
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Hi. My opinion is that the Riksbank can't influence inflation with the repo rate. It was quite possible 10 years ago, but now Sweden is such an open country that all price fluctuations depend on changes in supply and demand on an international level. The only sector in Sweden that can raise prices without other participants entering the market is the construction sector. All other sectors are competing on an international market. The prices of oil, energy, commodities, fruit, vegetables etc. etc. are not at all influenced by whether the repo rate in Sweden is lowered or raised. Shouldn't we abandon the repo rate as an inflation tool and open up sectors in which price fluctuations take place without being influenced by supply and demand to international competition?
Gunnar
Answer: The inflation target works well. Having other targets for monetary policy is not of interest at present.
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Is the inflation target of 2% connected to approximate expected growth? That is, would a country have a higher inflation target if much higher growth was expected?
Björn
Answer: No! The inflation target of 2% has been thoroughly tried and tested and is just right! Monetary policy can't influence growth over the long term.
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Why have you cut the repo rate today?
Martin
Answer: To increase demand in the economy. This is good for the inflation rate, growth and unemployment.
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Hi Stefan. What concrete alternative instruments does the Riksbank have to work with now that the repo-rate weapon is beginning to lose impetus? Does the Riksbank work together with the government in terms of getting the economy moving, or do you each run your own race, on separate courses?
Blondonbella, Cheap Side, London
Answer: We can 1) keep the repo-rate low for a long period 2) lend to banks and other financial institutions to an even greater extent than at present and 3) purchase government bonds or mortgage bonds on the market. All three of these measures will make it easier to lend, although the mechanisms for achieving this are slightly different.
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Is the Riksbank currently considering extraordinary measures such as the purchase of government securities, commercial paper and so on?
Banker
Answer: No, not at present, but this is a question we're following carefully, considering the current interest rate level.
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The low interest-rate policy has created the current financial crisis. Why do you believe that an even more extreme low interest rate will solve the crisis? Isn't it actually the other way round?
LG
Answer: In the current situation, demand in Sweden and abroad has to increase. This makes a low interest rate appropriate, quite independently of what may have happened before.
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How do you expect SEK to develop against EUR over the next 6 month?
Valutagraf.se
Answer: We have a variable exchange rate and expect that the krona will appreciate in the period ahead.
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The banks get better margins with each repo-rate adjustment. Shouldn't the banks decrease/increase by the same degree? And let consumers have their piece of the pie?
Joacim
Answer: The repo rate has now been cut from 4.75% to 0.5%. At the same time, all possible interest rates have also fallen. This doesn't take place in the proportion 1:1 and neither does it always take place immediately, as the banks have to have a margin on their lending, and loans with different maturities also have quite different interest rates. The main part of the banks' funding is through the markets and interest rates there vary depending on risk perception, monetary policy etc.
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What do you think the Riksbank's hardest task will be in 2009?
Valutagraf.se
Answer: Calibrating monetary policy so as to support demand in Sweden, meeting the inflation target a few years ahead, and simultaneously providing enough lending to the banks to allow the markets to function.
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Do you think the Swedish banks will come out of this crisis unscathed?
Valutahandel.nu
Answer: Yes, everything will probably sort itself out this time too. There will probably be some loan losses, but the banks will cope with that.
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How long have you been Governor of the Riksbank?
Valutaomvandling.se
Answer: Slightly more than three years.
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Will Sweden cope with the financial crisis better than the other Nordic countries?
Valutaomvandling.se
Answer: I wouldn't like to make any predictions about that, at present. Of course, it's hard to make comparisons too. These countries are not completely identical and have different conditions for managing economic development.
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Will Sweden be able to emerge from the financial crisis if the United States doesn't start to rebound?
Nafets
Answer: We expect the upturn in Sweden to arrive at approximately the same time as in the United States, but this, in turn, does not mean that the period of weak growth will be shorter here.
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What's the best thing about your job as Governor of the Riksbank?
Valutaomvandling.se
Answer: I enjoy going to work every day. A long time ago, I studied to do this kind of work. It was mostly theory then, but now it's a matter of practice and this makes me happy.
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Do you come under any political pressure to hold the repo rate down? As far as I remember, your predecessor got a very nice job after having carried out one final, controversial decrease.
Dacke
Answer: No, we're not put under any political pressure when we set the repo rate.
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How does the Riksbank distinguish between the CPI and imported inflation? Is a better measuring system needed for the CPI?
Henrik
Answer: This is an issue that has been discussed for decades and, so far, nobody has come up with anything better than the CPI. We don't see any need for any additional new kind of price index.
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What do you economists have against stable currencies? Up until '71, you could print exchange rates in the schoolbooks.
Dacke
Answer: Yes, but it didn't really work. Sweden still had to go through a series of devaluations, so the variable exchange rate we've had since the start of the 90s has worked better in today's world.
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How many people work at the Riksbank? Which authorities or banks in Sweden do you have the closest cooperation with?
Valutaomvandling.se
Answer: We are about 360 full-time employees, and we have different types of contacts with a large number of banks. As far as authorities go, we have frequent contact with Finansinspektionen (the Swedish Financial Supervisory Authority) and the Swedish National Debt Office.
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How come the Governor of the Riksbank is taking the time to sit down and chat with the people of Sweden? Is it to raise your profile in society or to increase understanding of the economic situation – or something else?
Valutaomvandling.se
Answer: I think it's important for us to communicate with as many people as possible. Part of the job consists of talking about Sweden's monetary policy and, as far as I can, being something of an educator. Everybody is, of course, affected by the determination of interest rates in society to some extent, and so it falls on us to reach out to the general public in various ways. Chatting like this is one alternative among many. We too have to keep up with technological developments in the area of communication.
