Chat with Stefan Ingves 20 april 2011
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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What’s a normal interest rate level in normal times and what are normal exchange rates for EUR/SEK and USD/SEK? Ulf
Answer: Our forecast for the repo rate is an interest rate of around 4 per cent under normal circumstances. The exchange rate is floating, meaning that it is determined by market conditions. In our forecast, this time we make the assessment that, as a whole and in relation to many different currencies, the exchange rate will not change that much – but exchange rate forecasts are normally difficult to make and very uncertain. Many thanks for so many good questions and Happy Easter!
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Regarding increasing prices for tenant-owner flats and houses: would I be right to suggest that inflation is being restrained by the large numbers of people buying homes that are so expensive that they can’t afford to consume much else? In other words: do high mortgages contribute towards rising inflation? Bengt
Answer: The development of the CPI is determined by the total of all consumption. It’s hard to predict the final result of your example. Increased lending normally contributes towards rising inflation regardless of whether the money is used to purchase housing or something else. This is because borrowing increases scope for consumption today above the level of available income.
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Have you reintroduced the restrictions on which securities can be accepted as collateral in RIX, or have they still been removed? student
Answer: No, we haven’t changed the conditions for collateral since the financial crisis. If we decide on further changes, we’ll announce them in good time.
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How do you consider that the extraordinary measures adopted during the crisis led to target fulfilment? student
Answer: When the interest rate reached the low point of 0.25, our extra lending in both Swedish kronor and US dollars helped make monetary policy and access to liquidity even more expansionary, which was important to maintain activity in the financial sector at that point.
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How great an influence did the ECB’s interest rate decision last week have on the Riksbank’s decision today? Shahin
Answer: Foreign interest rates are one factor among many that are weighed into our interest rate decisions, but there’s no automatic connection or coordination between what the ECB does and what we do.
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Howdy Ingves. You’ve got to have amortisation requirements, not interest rate increases! Amir
Answer: We can’t place demands for amortisation. That’s a question for Finansinspektionen and, above all, for the banks themselves. We think it’s a good thing that the banks are making such requirements.
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Why did the Riksbank choose not to adopt quantitative easing, as many other central banks did? student
Answer: We reached the conclusion that it wasn’t necessary. As far as we were concerned, it was most important to ensure that the banks could continue to lend money, and our lending to them eased this activity.
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How were the fixed-interest rate loans in 2009 funded? Was it via quantitative easing? Student
Answer: The loans were issued against collateral in government bonds or housing bonds. We lent only against collateral, but never purchased securities on the market. In this sense, our measures were slightly different to those adopted by the Federal Reserve (for example), as they also purchased large amounts of securities.
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How do you justify the restrictive monetary policy when unemployment is still so high? student
Answer: Just now, monetary policy isn’t so tight. The interest rate is low in comparison to its historic average and, at the same time, unemployment is falling quite rapidly. In order to meet our inflation target, we need to make monetary policy slightly less expansionary. That’s why we’re increasing the interest rate.
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Dear Stefan, what is your view of the risks and consequences for the Riksbank’s remit of cancelled repayments for lenders to the PIIGS countries? Carl-Henrik
Answer: Sweden doesn’t have particularly high exposure of any kind towards the countries you mention, so, even though they have a great deal of economic problems, we don’t think that this will affect Sweden to any great extent.
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I’ve been doing some thinking about the recent years’ turbulence on the financial markets and I believe that Sweden has come through this crisis due to the fact that we have our own currency and have been able to grant ‘discounts’ on our exports during the crisis in a way that our neighbours haven’t been able to. As an importer, I’ve been able to export my way out of the crisis. My question is: isn’t the Swedish krona dangerously cheap at present? Ulf
Answer: We don’t have any target for the exchange rate and it’s very difficult to make exchange rate forecasts. At present, our assessment is that the exchange rate will be quite stable in the period ahead. This is our conclusion from simultaneously taking account of many different currencies.
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Hi Stefan. Now that interest rates are rising and the difference between the CPI and the CPIF is becoming clearer, which measure will you choose to focus on? Magnus
Answer: Our target is the CPI. However, we also choose to examine different measures of inflation as a complement to the CPI. Particularly in times when there are many movements in the interest rate, we also examine the CPIF (the CPI without interest rate adjustments). This is to prevent monetary policy being influenced over the short term by our setting of the interest rate.
