Chat with Stefan Ingves 1 July 2010
Governor Stefan Ingves chatted in Swedish on the Riksbank's website. This is a translation into English of the questions and replies.
What negative effects would there be on the economy if you were not to increase the repo rate on 7 July? Tommy
Answer: This would make development more imbalanced. By increasing the repo rate now and gradually increasing it over a fairly long period of time, we’re ensuring that we will meet the inflation target, at the same time as the Swedish economy grows.
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Is there a risk for future inflation now that central banks such as the ECB, BoE & Fed are implementing/have implemented quantitative easing? Jonas
Answer: No, I don’t think so. Liquidity has primarily been supplied because the banks, for precautionary reasons, have wished to hold more liquid assets. Such a course of action does not drive inflation. When economic development is then normalised, this liquidity is withdrawn and everything returns to normal.
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There is, of course, cause for concern in the PIIGS countries, at the same time as the global economy may not recover as expected. If the situation gets worse than it is at present, do you see any possibility of then decreasing the repo rate again? Or is Sweden sufficiently strong to continue along the adopted interest rate path? Tommy
Answer: Our best assessment is that the situation will not develop as you suggest. If such a situation should nevertheless develop, we would have to determine an appropriate monetary policy at that point in time. In such a case, it is possible that a number of interest rate changes would be postponed.
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Could the inflation target of 2% be changed in the near future? Peter
Answer: No!
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Your growth forecasts are much more optimistic than others. Why? Axel
Answer: The forecast presented by the National Institute of Economic Research last week was very similar to ours. At the same time, it is not always certain that other forecasters have had the opportunity to consider the very latest information, in which incoming data points in a positive direction.
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Do you, at the Riksbank, have any opinion on the maximum amount of the loan (as a percentage) that borrowers should have on their homes? Tommy
Answer: No, we don’t, other than that borrowers should be cautious and should ensure that they will also be able to meet interest payments and amortisations in a situation with higher interest rates than we have at present.
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How long do you think it will be until the repo rate reaches a level of about 3%? Janette
Answer: The repo rate will be increased gradually and our forecast is that the repo rate will reach 3% in the middle of 2012.
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Now that you’re increasing the repo rate to 0.5 percent, inflation is immediately rising. It’s an increasing feedback loop. Why don’t you take this into consideration? Kent B
Answer: We do. Over the short term, CPI increases when interest rates rise. Another measurement of inflation is CPIF, which doesn’t include interest rate increases. Over the longer term, the interest rate effect on CPI drops off and both indices become approximately the same.
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In somewhat simplified terms, the situation seems to be that things are going better for Sweden, but worse for Europe. How much consideration do you have to take of the situation abroad? Tommy
Answer: We always consider the situation abroad, as Swedish exports and imports are extensive and affect economic development in Sweden. This time, we have counted on a degree of financial worries remaining in other parts of Europe.
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What do you mean by normal level? What is abnormal about the present interest rate level? Björn Wilhelmsson
Answer: In normal times, a normal interest rate level is approximately 4%. Just now, the interest rate is far from that level, as we have been through a severe downturn.
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What is your view of the development of the Swedish economy compared with that of the EU, and the approaching economic problems that will also affect Sweden? Ronny
Answer: The situation is presently more favourable for Sweden than it is for many other countries in the EU. We don’t have any fiscal problems and our banking sector is functioning well. Consequently, the recovery will be stronger here, now that the global economy is growing once again.
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Hi, Stefan! I wonder why the repo rate was “only” increased by 0.25 percentage points. Why wasn’t it increased more? Therese
Answer: An increase of 0.25 was considered sufficient for the moment, but it should also be remembered that we expect many interest rate increases in the years to come.
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Why is the prediction interval for the interest rate three years ahead so incredibly broad, covering almost the entire span of conceivable interest rates? Jens
Answer: Uncertainty is very high three years ahead. The broad interval reflects this characteristic.
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Hi, Stefan. Will Sweden really be able to recover so rapidly, considering that we are an export-dependent country and that the situation doesn’t seem to be so bright in many other countries? Emelie
Answer: Yes, our opinion is that a recovery seems reasonable. World growth will reach approximately 4%, and world trade is now growing rapidly. This benefits Swedish exports and the recovery of the Swedish economy.
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What function is served by the Riksbank's foreign currency reserve when the bank doesn’t have a target for the krona’s exchange rate? Johan
Answer: It’s a liquidity reserve that we can use in the event that the banks need to borrow foreign currency from us. This is what we did during the crisis.
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Hi, Stefan. When will the interest rate peak and what level will it reach? Emma
Answer: Our forecast predicts that the interest rate will be close to 4% in three years.
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How will the increased repo rate affect my savings accounts? Arne Bengtsson
Answer: General interest rates will increase, and thus interest on deposits should also go up.
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What are the most important arguments/factors at play in the Riksbank’s decision to increase the repo rate today? Odd
Answer: Growth levels in the world are returning to normal. This is also affecting the Swedish economy and growth is getting underway in Sweden. We have already experienced positive growth for more than a year. This will lead to inflation above the target of 2% – unless we gradually increase the interest rate.
