Chat with Stefan Ingves 27 October 2011
Governor Stefan Ingves chatted in Swedish on the Riksbank's website. This is a translation into English of the questions and replies.
---------------------------------------------------------------------------------------------------
Did you take last night’s crisis package for the euro area into account in today’s decision? Peter
Answer: Yes, in as far as we expect that the problems in Europe will be solved. We couldn’t know in advance that it would be last night that these issues would take a step forward, but the direction of the decisions is the right one and the measures proposed correspond well with our assessment of what should be done. Thanks for all your interesting questions and thanks for all the interest you’ve shown in Swedish monetary policy and economic policy in a broader sense. Have a good day. Regards, Stefan.
---------------------------------------------------------------------------------------------------
Stefan! What’s your view of the banks’ dependence on dollar borrowing? Does the Riksbank have to make a margin for this in its balance sheet? Claes
Answer: At present, Swedish banks have no problems in borrowing in USD. At the same time, of course, it’s a risk that both the banks and we ourselves are keeping a watchful eye on. One reason to maintain a foreign currency reserve is to be able to provide USD or other currencies if necessary.
---------------------------------------------------------------------------------------------------
How does the future situation of interest rate increases look? Margita
Answer: The repo rate will be raised from today’s level of two per cent from the later part of 2012. This assumes that our forecast continues to remain valid later on.
---------------------------------------------------------------------------------------------------
Would you dare to lend your own money to Greece? If so, at what interest rate and for how long? Anders Lönnqvist
Answer: Well, that’s not something I have to decide on. However, the situation is that Sweden, via the International Monetary Fund, is participating and lending money to Greece. For a very long time, Sweden has always been involved, one way or another, in trying to help when countries are straightening out their economic problems. And, of course, that’s also what we did when Iceland and Latvia had lots of serious financial worries, not all that long ago. The decisive issue in lending occasions such as these is often setting the interest rate. But the terms you place for the loan are much more important. These terms are usually pretty hard, but serious economic problems are seldom solved without terms.
---------------------------------------------------------------------------------------------------
Shouldn’t you be lowering the interest rate instead? Rune
Answer: No, we think we’ll get better economic growth and, at the same time, meet our inflation target if the repo rate is held unchanged. (Chapter Two of our Monetary Policy Report presents a technical analysis of what would happen if the repo rate were to be lowered instead)
---------------------------------------------------------------------------------------------------
Your decisions affect many people, sometimes more than important Riksdag decisions. Don’t you ever feel that you have too much power compared with how many of you there are? Tommy
Answer: After long deliberation and using their long experience, the politicians have concluded that the present system should lead to interest rate decisions giving a rate of inflation close to our inflation target of 2 per cent. And this is what has happened. In other words, the present model for decision-making has worked well for quite a long time.
---------------------------------------------------------------------------------------------------
When you make decisions, do you at the Riksbank have access to material that the “market” doesn’t? Tommy
Answer: These days, almost all data reaches everyone at the same time. However, different models can then be used to analyse this data, and these models differ from analyst to analyst. The technical specifications or our models are available to everybody, so it’s not particularly hard to get a clear view of the approach we take when making decisions.
---------------------------------------------------------------------------------------------------
What’s the Riksbank’s view of wage increases in 2012, following the autumn’s turbulence on the financial market and the banking crises in Europe? Susann Sandberg
Answer: We expect that wage increases will be about the same as usual, which is to say about 3.5 per cent. This will also contribute towards the even and stable development of the Swedish economy.
---------------------------------------------------------------------------------------------------
I was surprised (to say the least) when the repo rate wasn’t raised, when we have a CPI of 3.2%, in addition to a forecast pointing a good bit over 2% until 2014. It seems as though the Riksbank is abandoning its old inflation target and has its eye on the CPIF and other parameters. Doesn’t the inflation target count any more or is the pressure from industry and borrowers too high? Johan
Answer: The inflation target continues to apply. According to our analysis, inflation will soon fall back. Our monetary policy is aimed at influencing future inflation and, if we succeed in meeting our inflation target of 2 per cent, the CPI and CPIF will coincide over the long term.
---------------------------------------------------------------------------------------------------
How will the repo-rate path look next year? Christina
Answer: In our forecast, we believe that the repo rate will remain still, more or less until the second half of 2012. After this, the repo rate will gradually increase over several years, reaching 3.5% towards the end of 2014.
---------------------------------------------------------------------------------------------------
Hi Stefan. Do you think that the banks’ increased interest rate margins over the last couple of years have been reasonable (at the same time as we’re reading about higher profits)? Josef
Answer: Previously, the interest rate margins were too low. Now they’ve risen, but it’s hard to be sure of what a reasonable long-term level would be. However, it will probably be a margin that’s higher than the one we had before. If you don’t like it, it’s always possible to change bank.
---------------------------------------------------------------------------------------------------
How do you justify holding the repo rate unchanged when inflation’s so high? Håkan Karlsson
Answer: Current CPI inflation includes previous interest rate increases, and so CPI inflation is above two per cent. However, adjusted for this interest rate effect, inflation is below two per cent. Over time, both measures will move towards two per cent if we gradually raise the repo rate later on. Inflationary pressures, described in this way, are presently moderate and so it’ll be enough if we hold the repo rate at the present level.
---------------------------------------------------------------------------------------------------
Is it possible to say which is worst – too high or too low interest rates? What I mean is that if the situation abroad continues to be as uncertain as it is now, which direction should we be leaning to be on the safe side? In other words, is it better to have an interest rate that’s a little too high or is it better to be a little too low? Tommy
Answer: That’s a hard question to answer. You see, it mostly depends on the view you take of the future and what worries you most. All of our decisions are subject to uncertainty, because the future is unknown, of course. And this means that we have to make various adjustments from time to time – but we can’t decide what these adjustments will be in advance. This time, we’ve made the assessment that the problems in Europe will gradually be solved, at which time the economic situation will improve. If that happens – well, then we will eventually have to raise the interest rate in the future.
---------------------------------------------------------------------------------------------------
Hi Stefan! Holding the interest rate unchanged was in line with “market expectations”. Do you feel that you’re influenced by “market expectations” before you make your decision? Tommy
Answer: We always monitor the arguments about monetary policy existing outside the Bank, but ultimately it’s always us – and only us – who have to decide which course of action would be most appropriate. And that’s how it’s been this time too.
---------------------------------------------------------------------------------------------------
Now that both Paul Krugman and Goldman Sachs have expressed support for nominal GDP-level targeting, it would be interesting to hear your opinions. Could this be something for Sweden? How wide is the Swedish nominal GDP gap compared with the historical trend? Is NGDP-level targeting compatible with the Riksbank’s double mandate? Peter
Answer: At present, I can’t see us changing target variable to NGDP. By now, price stability in the form of an inflation target of 2% has worked well for a long time in Sweden – so, regardless of the academic discussion of various alternatives, there’s no question of changing the target for monetary policy.
