Chat with Stefan Ingves 3 July 2013

Patric (13:32) 

Answer: At present, growth is weak and inflation is low. This means that the present low repo rate will be justifiable for about one year ahead. This will help us hold up demand so that growth picks up speed and inflation will increase in 2014 and 2015.

• Is it true that most of our money is created by private banks and not by the Riksbank?  

Henrik J (13:33) 

Answer: Yes, this is correct. Most of the money existing today consists of deposits in banks. Of course, today this is, in a certain sense, electronic money. These deposits are much greater than the amount of banknotes in circulation, which is about SEK 90 billion.

• Hi Stefan Ingves! Almost everybody's talking about the Swedish people's high level of indebtedness, so I was wondering if having a repo rate of just 1.00% won't make indebtedness continue to increase? And when will Swedish indebtedness be so high that it will form a danger to financial stability in Sweden?  

Magnus (13:38) 

Answer: We expect indebtedness to continue to increase to some extent in the years ahead. But this will be more slowly than if the repo rate had been even lower. High debts increase risks for both households and the financial sector. This is why we discuss this question so much. It's very difficult to know in advance which level is too high. You don't know until after a problem has arisen, so it's good to be cautious in case we encounter major problems.

• Can the Riksbank really wait until 2014 before raising the repo rate, considering that household indebtedness is continuing to grow like it is just now? When will indebtedness become unsustainable?  

Anders (13:41) 

Answer: Yes, we consider that this is the most appropriate course of action. Monetary policy is above all a matter of inflation and economic activity. The repo rate needs to be low just now to support general economic development. We expect growth in Sweden and abroad to pick up speed next year, at which point the repo rate will gradually be increased as inflation rises and approaches our inflation target of two per cent.

• Hi Stefan Ingves. Isn't it time to do something NOW to limit households' debts? Who decides on amortisation requirements? If the banks don't do it, who will?  

Peter (13:42)

Answer: Either the banks must decide on amortisation themselves or the matter will be taken up by Finansinspektionen (the Swedish Financial Supervisory Authority) – ultimately it could become a legislative issue requiring a political decision.

• How do you actually define the concept of money? I've heard you want to abolish all banknotes and coins.  

Kalle (13:47)

Answer: We have no intention of abolishing banknotes and coins, and it is up to each and every individual to decide whether he or she wishes to use banknotes and coins or some form of electronic money. The important thing for us is being able to make payments in an efficient manner. How this happens in detail can vary. The usage of banknotes and coins is decreasing all the time, which isn't so strange considering technological developments in the area of electronic payments.

• With all the measures against credit growth that you want to introduce, isn't there a risk of going too fast and triggering exactly the scenario you're afraid of, in more or less the same way as you did at the start of the 1990s?  

Anna (13:51)

Answer: As always, this is a matter of finding a balance. I wouldn't want to compare today's situation with that prevailing at the start of the 1990s. In those days, Sweden had a number of different economic problems. The major loan losses we had then came above all from commercial properties, which is not at all the case today. But it's essential that household debts don't continue to increase, because then the risks will increase all the time.

• Hi Stefan! How is the economy affected by the repo rate?  

Patrick M (13:54) 

Answer: The repo rate affects the yield you get from your savings and how much it costs to borrow. When there's a low repo rate, it's cheap to borrow and invest. This holds demand up in Sweden. And this makes prices rise. At the same time, it's not good to borrow too much.

• Hi Stefan! I see that you're planning to scrap today's one-krona coin for a newer model in 2017. What would people have to do to redeem the hundreds of one-kronor coins they own? It seems a bit extreme to have to stand and feed them into a machine, one by one.  

Patrick M (13:57) 

Answer: The simplest thing is probably to buy things using the one-krona coins and then, when they're finished and you have to use banknotes, you'll get new one-krona coins back as change!

• Hi Stefan! I was wondering how much consideration was given to the household debt ratio in the decision to hold the repo rate unchanged. And, if the debt ratio wasn't as high as it is today, would you have lowered it?  

Jimmy (14:02) 

Answer: Household debts were considered in the decision, so the matter played a part this time. We want to avoid problems over the long term, for example individual households that can't pay their debts, rising unemployment and difficulties in attaining the inflation target. This means that the repo rate is a little higher than it would have been if we hadn't needed to consider the build-up of debts. We will now reach our inflation target of two per cent in about two years, which we consider to be the right balance.