Chat with Stefan Ingves 7 September 2011
Governor Stefan Ingves chatted in Swedish on the Riksbank's website. This is a translation into English of the questions and replies.
---------------------------------------------------------------------------------------------------
Can Sweden’s policy rate really influence the prices of goods and services upwards or downwards on a global market? Gunnar
Answer: Yes. Naturally, we can’t affect world market prices, but, on the other hand, we can affect prices in Swedish kronor on the domestic market. Together with the fact that we can affect prices in Sweden, this means that we can control inflation in Sweden. Thanks for all your interesting questions. Unfortunately, I haven’t got time to answer all of them on a day like today. Have a good day! Regards, Stefan.
---------------------------------------------------------------------------------------------------
Why isn’t Greece doing what’s needed? Tomas L
Answer: Greece has a long and difficult road to travel. No country can live beyond its means over the long term, but must cut its coat according to its cloth. This is a process that takes time and can be difficult to carry out, but, at the end of the day, there is no choice.
---------------------------------------------------------------------------------------------------
Does the Riksbank have ongoing contact with other central banks as regards interest rate adjustments? Tomas M
Answer: No!
---------------------------------------------------------------------------------------------------
Stefan, what would be needed to make other countries less uneasy? It feels like we’ve been affected by a lot of turbulence in recent years. Before that, we had many years of calm. Åke
Answer: Agreeing on how sovereign debt problems can be managed and getting to grips with solving these problems. More or less what we had to do in Sweden in the 1990s.
---------------------------------------------------------------------------------------------------
Are we on the road to a new financial crisis? Simon
Answer: Not as far as I can see for Sweden’s part. Our central government debt is low, we have a large current account surplus, and the banks are well-capitalised and able to borrow on the international market. On the other hand, several countries in southern Europe are struggling with a series of different economic problems.
---------------------------------------------------------------------------------------------------
Hi Stefan. Have I understood correctly that, according to your mission statement, the inflation target takes precedence over tasks such as stabilising the real economy? I’m deeply concerned that you’re not following the published interest rate path with inflation of 3.3%. Stimulation packages around the world have led to an increased money supply and increased inflation expectations, as can be seen not least through the development of gold prices. As a pensioner, can I feel secure that the inflation target will continue to take precedence in future and that my savings will not be undermined by high inflation? Jonas
Answer: It’s difficult to control inflation in detail so that it always ends up at exactly two per cent. Since the inflation target was introduced, we’ve actually come close to two per cent on average, so I don’t think you need to be worried. Our method of calculating the CPI involves earlier interest rate increases, which is one reason why the CPI is currently above two per cent.
---------------------------------------------------------------------------------------------------
Are the banks allowed to charge any interest rate they like? For example, Swedbank’s 3-month rate is 4.20% – that’s 1.45% higher than the policy rate + 0.75%. Per-Åke Bylund
Answer: Yes. As we don’t have interest rate regulation in Sweden, the Riksbank doesn’t control the setting of interest rates by the banks towards their customers in any detail. Consequently, various interest rates can deviate a bit from the repo rate. If you’re dissatisfied as a banking customer, you can always change bank.
---------------------------------------------------------------------------------------------------
Hi Stefan. Firstly, I was born in Närpes in 1950. I wonder what your thoughts are on the repo rate after today’s decision to hold it unchanged at 2%. Wouldn’t it have been better to lower it to 0.25% to prevent Sweden from completely grinding to a halt, and then return to the interest rate path after a time? Henrik Heikfolk
Answer: No, lowering the interest rate is not an option right now. That might give us problems with the rate of inflation later on, and we want to meet the inflation target of two per cent. We also calculate that growth will increase again in the period ahead.
---------------------------------------------------------------------------------------------------
Hello, hello! What do you do all day? What does a Riksbank Governor actually do? Rebecca Svensson
Answer: It’s quite mixed. Just now there’s a lot of monetary policy, but we also work with banknotes and coins, large payments between banks, managing the foreign currency reserves, monitoring financial stability etc. At present, we also have a lot of assignments to deal with in various international forums outside Sweden, for example in Basel, Frankfurt and Washington DC.
---------------------------------------------------------------------------------------------------
Is it still a good tactic to fight inflation with interest rate increases when inflation is being created due to increased costs (that is, increased prices for oil, electricity and commodities)? Evelin Kaup
Answer: Yes, the interest rate is a good means to use to reach our inflation target. When the interest rate rises, it becomes more expensive to borrow – you have to be more cautious, and this affects demand, which, in turn, steers inflation. We can’t do much about increases in commodity prices, particularly not if prices are determined by the world market. However, with the help of monetary policy, we can ensure that not everybody is able to compensate themselves for such price increases. In this way, the interest rate can also be used to keep inflation under control.
---------------------------------------------------------------------------------------------------
Households in Sweden are now facing interest rates that are rising briskly compared with the Riksbank’s repo rate. If variable mortgage rates are 4%, what’s the point of the Riksbank raising the repo rate at all? All indications are that the credit spread will continue to diverge at the same rate as the funding problem continues. Why do you continue to take the attitude that the repo rate steers the economy? Patrik
Answer: You can’t expect us to steer all interest rates down to the last detail. Consequently, mortgage rates can also deviate from the repo rate for a variety of different reasons. The interest rate margin varies over time, but we expect to see a lasting increase in it, as compared with previously this century.
---------------------------------------------------------------------------------------------------
Is there presently any possibility that the repo rate will be lowered? Ingrid
Answer: Not that we can see just now according to the forecast we’ve just published.
---------------------------------------------------------------------------------------------------
Is the Riksbank planning an increase for its next meeting? Birger
Answer: It’s not possible to make any statement today about when the interest rate will be raised. As far as we know now, the interest rate will be raised sooner or later, but I can’t say with any accuracy at which meeting. .
