Chat with Stefan Ingves 2 September 2010
Governor Stefan Ingves chatted in Swedish on the Riksbank's website. This is a translation into English of the questions and replies.
Aren't you too optimistic about the development of economic activity in Sweden? Mikael
Answer: No! We publish the best assessment we can make and Sweden is developing strongly right now; exports, consumption and investment are rising and this is having a very positive impact on growth.
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Suppose the long-term market rates fell towards 1.25 per cent in Sweden. Could the Riksbank react in such a situation to bring up these rates? If so, how? Extroitus
Answer: Such interest rates would have to be taken into account in an overall assessment of the development of the economy which would also include what the rate of inflation could be expected to be in the future. How this would then affect the decisions made would be determined by our assessment of the development of different variables in the economy.
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Hi Ingves, you say that a more rapid rate of wage increases in the longer term may lead to higher inflation, but don't you see any risks for inflation associated with pumping enormous sums of new money into the system and having a negative real interest rate over a long period of time? Wage increase would not be possible without the new money, as I see it anyway. Sven
Answer: During the crisis, it was necessary to substantially increase liquidity in the bank system. Now that the situation has improved we are withdrawing this liquidity again so that it does not lead to inflationary tendencies. During the autumn, we expect to phase out more or less all of the extra lending to the banks and our method of conducting monetary policy, that is by setting the repo rate, will return to normal.
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You are always talking about a housing bubble. Do you take the investments made to renovate and upgrade the property stock in Sweden into account when considering the increase in the value of property? In the United States they build new houses, while in Sweden we build a few new houses and renovate a lot. It is reasonable to assume that a recently renovated and modernised property is worth more than it was before. There is nothing magic about this. What can be regarded as a bubble is possibly the number of builders' merchants. You just have to compare the number of K-Rauta, Bauhaus and so on 15 or 20 years ago and now. By the way, I hope the mathematical question in the chat is not taken from the Riksbank's entrance exam for new recruits! Lars-Erik
Answer: Yes, we always get a lot of questions about the housing market. What is important is that the households don't borrow too much. This can create problems further down the road, problems that can be difficult to come to terms with both for individual households and for the economy as a whole. This is what has happened in the United States for example, and we want to avoid something similar happening here.
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Do you expect to continue raising the repo rate in line with the repo rate path, if development in Sweden goes according to plan, even if the Fed and the ECB leave their interest rates close to zero throughout the forecast period? Erik
Answer: Yes, the repo rate path is our best assessment of the shape that monetary policy will take in the years ahead, but the repo rate path is a forecast, not a promise. If things develop completely differently to what we expect we will take this into account in the future.
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Over the last 12 months the krona has strengthened against the euro and the US dollar. At the same time, imported goods such as cars, clothes, oil and electricity have increased in price by 2.5-3.0 per cent. Why is this? According to your forecast, the CPIF will fall from 2.0 per cent this year to 1.3 per cent next year. What is it that will cause prices to increase at a slower rate? Niklas
Answer: Increases in import prices are partly determined by the exchange rate but also by how much prices increase in the producing countries. When it comes to inflation, this is affected in the short term by a stronger krona and lower labour costs.
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Why is the difference between the repo rate and the rate at which the banks lend money to us so great? Wasn't it a good thing when SBAB was a state-owned bank where the state could set the limit for what the variable rate should be in relation to the repo rate? I get the impression that the banks are making a lot of money at the moment when they have broad margins for their interest rates. Jörgen
Answer: The setting of interest rates has long been unrestricted in Sweden. Monetary policy affects the general level of interest rates but the rates offered to the end customers are governed by the banks and the mortgage institutions themselves. This applies to SBAB too. No other system or regulation is being considered.
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What is your view the development of interest rates given the ceiling for mortgages that will be introduced on 1 October? Anna-Carin
Answer: The ceiling has not yet come into force so it is difficult to predict what impact it will have, but regardless of this we see interest rate increases ahead of us over the next few years.
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What should I buy each year to become the CPI's average person? 1.5 television sets per year? 1.7 DVDs per month? Where can I find these statistics? David Nyström
Answer: The simplest way to get the weightings used in the CPI is to contact Statistics Sweden.
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Two of the members of the Executive Board entered reservations today. What is the real difference between the reasoning of the majority and the reasoning of the members who entered reservations about how the repo rate should be changed? Sofia
Answer: You will be able to read the various arguments in the minutes of the meeting. These will be published on 15 September. Today I am presenting the majority view so you will have to wait for the nuances in the arguments until the 15 September.
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Does the Riksbank believe that the low long-term market rates pose a threat to financial stability? Extroitus
Answer: No, not at the moment. The Swedish financial sector is very stable at present.
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Hi Stefan! I am a single mother and I bought a flat a year ago. At the time I calculated that the mortgage rate could reach 6 per cent in the longer term. Now that the repo rate has been increased by 0.25 per cent can the banks increase their rates by more than this? I have heard that a new regulation is going to be introduced concerning how great a margin the banks can set in relation to the repo rate, do you know anything about this? Regards, Tina M.
Answer: How much the banks raise their rates is up to each individual bank, no regulation of the margin between the repo rate and the mortgage rates is on the cards. This margin can vary over time and between different banks.
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Why is it necessary to check an inflation rate of 1.1 per cent by increasing the repo rate (if it is the Riksbank's task to check inflation)? How great an impact do you think Basel III will have on variable mortgage rates? Marcus Ahlin
Answer: It is not the current rate of inflation that monetary policy can influence but inflation in the future, our inflation assessment includes future repo rate increases, without them inflation would exceed the target of 2 per cent. It is too early to say anything about the details in Basel III as the discussions are still continuing, but it is most likely that mortgage rates will increase somewhat.
