Chat with Stefan Ingves 15 December 2015
Many thanks for all your interesting questions. Merry Christmas and a Happy New Year to you all.
Hi Stefan. The Riksbank warns us, again and again, of the risks inherent in household indebtedness. Is there anything you can do or is this only the responsibility of the Government and Finansinspektionen? Patric (13:32)
Answer: Eventually, when interest rates rise, it will become more expensive to borrow and then people will borrow less. Before this happens, Finansinspektionen, the Government and the Riksdag are the ones able to act to make it more expensive or more difficult to borrow.
Hi Stefan. Will a repo rate cut be more likely than a repo rate increase in 2016? Magnus (13:33)
Answer: If you look at the repo rate path, it seems slightly more likely that there will be a cut than an increase. But it seems most likely that the repo rate will remain at -0.35%.
Hi Stefan. Does the Executive Board still consider that the normal state of the Swedish economy is to have a CPI of 2% and a repo rate of 4%? Or have you discussed any changes? Fredrik (13:34)
Answer: Yes, we do. But it will be a long time until we reach that interest rate level again.
Stefan, you want inflation. Instead of cutting the repo rate, why don't you just print more money and then you'll get inflation and can build new housing? Right? I'm 14 (13:36)
Answer: In a certain sense, we're already creating more money. Every time we purchase a government bond, we pay with fresh new money so, just now, we're working with both the price of money (the repo rate) and the quantity of money (our purchases of government bonds).
Hi Stefan. How independent can the Executive Board of the Riksbank be when politicians and economists are appearing in the media and sharing their opinions of the level of the repo rate? Patric (13:37)
Answer: Other people having a discussion has nothing to do with our independence. Discussions are a good thing, but we take decisions completely independently.
Hi Stefan. When you make a change to the repo rate, how much time does it take before its full effect becomes noticeable in the Swedish economy? Johan (13:38)
Answer: It takes about two years for an interest rate change to have its full effect. It's a gradual process.
Hi Stefan. According to the latest figures from Statistics Sweden, households had SEK 3,262 billion in debts, and these are growing at an annual rate of over 7%. How much longer will it be tenable for debts to grow twice as quickly as incomes? Is there anything you can do? Annika (13:40)
Answer: This is not sustainable over the long term. Therefore it is important that it becomes more expensive and difficult to borrow. This could be achieved,for example, by removing tax relief and introducing a ceiling for how much it is possible to borrow in relation to income. Such decisions are taken by the Riksdag, the Government and Finansinspektionen, not by the Riksbank.
Hi Stefan. Who decided that the inflation target should be 2%? And would it be possible to change it to a lower target? Anders (13:42)
Answer: The Riksbank did in 1994, but with the support of the Riksdag. Technically, it could be adjusted either upwards or downwards, but there are no plans to do so. Two per cent has worked well for Sweden. Many other countries have about the same level.
Hi Stefan. Is the inflation target of 2% measured in terms of the CPI or the CPIF? Anna (13:43)
Answer: The target refers to the CPI but, in the short term, the CPIF is more important, as the CPIF doesn't include interest rate adjustments.
Hi Stefan. Which is or was the greatest challenge for you – the crisis of the 1990s, the financial crisis or the current problems of increasing inflation despite the negative interest rate at the same time as households' debts are rising? Merry Christmas and a Happy New Year. Patric (13:44)
Answer: For everything there is a season and it's hard to make a comparison. These challenges were all quite different, so I'm going to choose not to rate them.
Hi Stefan. This question is of a personal nature. Considering that you're originally from Finland, I suppose that you consume very large amounts of coffee on a daily basis. What kind of coffee does the Governor of the Riksbank prefer? Bengt Gustavsson Fors (13:46)
Answer: I think that people in Sweden and Finland drink about the same amount of coffee. Foreign visitors usually mention that we drink a lot of coffee here. I don't really have any favourite type. I just drink whatever's on offer.
How does the Government's new budget bill affect the Riksbank's decisions? Håkan Olsson (13:47)
Answer: Compared with the previous situation, we now believe that growth and inflation will be slightly higher but, in the short term, it has no effect on monetary policy.
What happens if the Fed raises its policy rate on Wednesday? Micke (13:48)
Answer: It's hard to know. We'll have the answer on Thursday morning.
Why don't you abolish tax relief for mortgages? It mostly benefits those with the highest incomes and expensive houses or flats. Those in rented accommodation are the losers in the long run. Peter sandgren (13:49)
Answer: We think it would be positive if tax relief was abolished, but this is a matter for the politicians to decide upon.
Hi Stefan! How can household indebtedness be restrained or reduced at the same time as we need more newly built housing? SImon (13:51)
Answer: It needs to become more expensive and more difficult to borrow, e.g. by abolishing tax relief on mortgages, at the same time as the supply of housing needs to increase. The latter could be achieved by changing various regulations that are hindering an increased supply of housing.
Hi Stefan. Isn't the inflation target obsolete? There's massive surplus capacity in the global economy and the low inflationary pressures are due to structural factors instead of factors of a transitory nature. Isn't it time you started to realise how your monetary policy is distorting asset prices and encouraging speculation? Investeraren (13:53)
Answer: We still think that an inflation target is necessary, but, at the same time, it's also necessary to keep track of what's happening with various asset prices. The inflation target and financial stability are two targets that interact.
Hi Stefan. What happens if a central bank becomes insolvent? When I analyse the Fed's balance sheet, I get a solvency margin of 1.3% and massive duration risk after all the QE (in which securities with long durations were purchased). Now that an interest rate increase is imminent in the United States, the value of these bonds will fall and undermine the minimal capital reserve existing at present. Can the Fed have a negative solvency margin without there being consequences? Handelsbankare (13:58)
Answer: A central bank can technically have negative equity (be insolvent) and still pay its bills. This is because, unlike other banks, a central bank can always create more money and pay its bills. That's the technical answer. But then it's another matter entirely whether it can be seen as appropriate for a central bank to have negative equity. It's a question of judgement. In a small open economy like Sweden's, I don't think it would be particularly appropriate. All the discussions would probably undermine confidence.
Hi again Stefan. Last question. The Fed has increased its balance sheet fivefold since 2007/2008 and created enormous amounts of new money. Everything else being equal, shouldn't this result in massive retail inflation, sooner or later? Where has all this money gone? Is it that the banks that sold their MBSs to the Fed are sitting on it as a 'reserve'? Many thanks. Handelsbankare (14:03)
Answer: Every time the Fed – or the Riksbank, for that matter – purchases a security, we pay with new money. At the end of the day, the same amount turns up again as a deposit with the Fed or Riksbank. This is how it always is, regardless of how many times the money is lent out in the financial sector in between. The money doesn't disappear because this balance sheet identity, i.e. the central bank's assets, (purchases of securities) increases as much as the liabilities (deposits).
