Chat with Stefan Ingves 26 October 2010
Governor Stefan Ingves chatted in Swedish on the Riksbank's website. This is a translation into English of the questions and replies.
Statistics Sweden has four measures of inflation (CPI, CPIX, CPIF, HICP). Why is the CPI considered to be the most important? Robert Johansson
Answer: The CPI is the broadest and best-known measure of price developments in Sweden. The other measures form a strong complement.
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Why can’t you be better at communicating and guiding the market between meetings, and why do you have so few meetings each year? The market would be less turbulent if you had 10 meetings per year, for example. Ecke
Answer: We think that the present number of meetings is entirely satisfactory. If we have meetings too often, not many economic developments have time to take place in between. A great amount of analysis is also needed to reach well-based conclusions – and that takes time. If drastic changes happen very rapidly, we are free to hold meetings whenever necessary - and this is exactly what we did during the most acute phase of the crisis.
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According to the IMF, our housing market is one of the world’s most overvalued. Why don’t you raise the repo rate more? Lars
Answer: Monetary policy is adjusted to general economic developments in Sweden so that we can meet our inflation target. Considering this, the development of the housing market is one factor among many that plays a certain role. In addition, providing an exact definition of overvaluation isn’t entirely straightforward. Different analysts arrive at slightly different conclusions.
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Aren’t you worried that we’ll end up in the same situation that we did in the autumn of 2008 – i.e. that you will raise the repo rate too much? Peter
Answer: No, we’re not worried. Should developments turn out to be completely different from those in our main scenario, we’d have to react and formulate monetary policy in a different manner. An example of this can be found in Chapter Two of the Monetary Policy Report.
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Do you see any risks in the fact that Sweden has now had a negative real interest rate for approximately one year (CPI) to approximately two years (CPIX, CPIF, HICP)? robjoh
Answer: In recent years, it’s been advantageous to have a negative real interest rate, which has helped during the economic downturn. However, it’s not good to have a negative real interest rate for too long. This can easily allow financial and other imbalances to build up, which can create major problems later on.
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How large is the risk that we will experience a housing crisis similar to that of the 1990s (Bengt Dennis’s initiative) in the next 10 years? Mathias
Answer: A great many of the problems back then were primarily created by commercial properties. Today, the discussion is focused, above all, on preventing households from borrowing excessively. In addition, in those days, the Swedish economy was in far worse condition, with major imbalances. This isn’t the case today.
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How can it be possible that you have revised the repo rate path downwards for 2011 at the same time that you have also revised your GDP forecast for the same period upwards? Maria
Answer: This is a result of our view of developments abroad, where inflation will continue to be low and where it will be a while until interest rates are raised. This influences inflation and exchange rates in Sweden. In turn, these factors influence our choice of repo rate path.
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Hello? Are you there? Lars
Answer: Yes, thank you! Now we’re back again!
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Swedish interbank rates have increased quite a bit after the last loan to the banks matured at the start of the month. Was there any bank in particular that mismanaged its liquidity planning or was it the whole market? Peter
Answer: It has taken a little time for the banking system as a whole to return to lending and borrowing between the banks, now that the Riksbank is no longer providing a very large liquidity surplus, but, as far as I can judge, most of these activities are now functioning normally, just as we expected.
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Isn’t there a risk that people will continue borrowing excessively for home purchases when the real interest rate two years ahead is approximately 0%? Markus
Answer: Yes, this risk exists, which is why we’ve also pointed out that household borrowing, in the long term, shouldn’t be on the current level.
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Property owners and business owners are already crying out for help. Can companies cope with more normal interest levels after such a long period of negative real interest rates? Erik
Answer: Sorry for the delay in answering, but now, after some technical difficulties, I’m back again. Considering the strong economic development we have at present and will continue to see in the years ahead, companies can cope with positive real interest rates.
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Will Sweden ever adopt the euro? Lars Erik Skovgaard
Answer: This is ultimately a political question on which I find it difficult to comment. At any rate, no adoption of the euro is being considered at present.
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The repo rate is now at 1 per cent … I’m paying almost 3 per cent on my variable-rate mortgage. If you raise it as you have said you will, I’ll soon be paying 5 per cent. Is this reasonable? Wouldn’t this be putting the brakes on the economy a bit too rapidly? Putte
Answer: Our repo rate path, which indicates continued increases, specifies the repo rate that we deem necessary to meet our inflation target of 2%, while, at the same time, safeguarding the strong development of the Swedish economy. In addition, it should be assumed that mortgage rates will be slightly above our repo rate.
