Chat with Stefan Ingves 28 October 2015

Many thanks for your interest and for so many interesting questions. Enjoy the rest of this beautiful autumn day!

Regards, Stefan Ingves.

Hi Stefan. You're continuing to hold a historically low repo rate at the same time as households' high indebtedness is increasing further. Is this only the responsibility of the Government and Finansinspektionen or can the Riksbank also do something to restrain indebtedness? Patric (13:32)

Answer: At present, it is the Government, the Riksdag, Finansinspektionen and the banks themselves who have to deal with this matter. If we were to substantially raise the repo rate now, the krona would increase in value, imports would become cheaper and we wouldn't reach our inflation target of two per cent.

Hi Stefan. I see in your forecast for the repo rate that you raise the possibility of further repo-rate cuts in 2016. What is this change due to? Magnus (13:33)

Answer: The repo-rate path has exactly the same form as it did when we took our last decision in September. So there's nothing new. We can cut the repo rate further if we have to. This is what the "hammock" signals.

Hi Stefan. Could the decreasing use of cash with each year that passes be a problem in the next serious crisis or housing crash? They say that cash is king, after all. Patric (13:35)

Answer: Cash is king also applies to electronic money - it doesn't have to be physical money. We don't see any problem with the way that cash usage is diminishing.

Hi Stefan. It's easy to understand how repo-rate cuts/increases affect market rates, but how are market rates affected by your SEK 200 billion government bond purchases? Fredrik (13:36)

Answer: We purchase bonds and pay with new money. This money is used, in turn, to purchase other bonds. The prices for bonds rise, meaning that interest rates fall. And this is exactly the result we want.

Hi! Inflation isn't really picking up, despite the low interest rates. Isn't it time we questioned whether this theory is really correct? Could high indebtedness among private households have deflationary effects that are counteracting the inflation target? Jörgen (13:40)

Answer: The theory is probably correct. We know very well how to achieve inflation. For us, it's all about raising inflation in a controlled form. High - or too high - indebtedness can, to an extent, pull in the other direction as consumption falls in a situation when everybody is trying to repay their loans. The low repo rate has also had the effect we wanted. Inflation is now on the way up.

Hi Stefan. Do you see any reason to change the normal level of the repo rate from between 3.50–4.50% and the inflation target from 2.00%? Is this something you discuss in the Executive Board? Anders (13:41)

Answer: This is an issue we discuss now and again. As yet, there is no reason to change our view of a normal repo rate, even if it will take a good while for us to get back to that repo-rate level again.

Hi Stefan. Does Sweden have the world's most indebted households? If not, how many countries have more indebted households than Sweden? Magdalena (13:42)

Answer: There are a few countries with even higher indebtedness. Denmark, Norway and the Netherlands are among the highest.

Hi Stefan. When do you expect Swedish banks to introduce minus interest rates to their bank accounts - or must cash disappear first? Björn (13:44)

Answer: It's hard to say. So far, it hasn't happened but, from a purely technical point of view, it could very well happen while we're still using cash. The banks decide themselves what they want to do.

Hi Stefan Ingves. I have a question for you that concerns your reasons for not cutting the repo rate more. Cutting the repo rate would have weakened the Swedish krona, which would have meant that inflation could have increased. Gabriel Bertilsson (13:45)

Answer: This time, we made the assessment that it would be most appropriate to purchase more government bonds instead. This measure will also push the general level of interest rates down, at the same as we're proactively managing the ECB's upcoming bond purchases.

Hi Stefan, What is the lowest rate that the repo rate can be cut to? Are you worried about financial stability concerns? James (13:47)

Answer: Technically, -0.35 is not a floor, if need be we can go below that, and yes I do worry about financial stability issues. This holds particularly in our mortgage market since Swedish households are borrowing too much.

How long are we supposed to have inflation? For ever? David (13:49)

Answer: We think that inflation of about two per cent is good for the Swedish economy. So yes, we will have inflation indefinitely.

Hi Stefan. You're releasing new banknotes and coins, but cash handling has almost disappeared from all banks. Who is able to demand that the banks have cash? Bengt (13:50)

Answer: Under the legislation we have today, the banks decide this themselves. Ultimately, it is a question of how the banks choose to care for their customers.

Is the old 2-krona coin valid? Richard, aged 13 (13:51)

Answer: Yes, it's valid until 30 June 2017. At the same time, it's very unusual to see one of these 2-krona coins in circulation today, even if it is a valid means of payment.

If you look at the individual components in inflation, prices have, in principle, only fallen for energy, interest rates and electronics. Other prices are increasing by 0–6% per year. Why isn't this enough inflation? Viktor Kalin (13:54)

Answer: We look at an aggregate basket of goods and services, the consumer price index, with a large number of sub-components. It's not enough to just follow a few goods.

Hi. Compared with when the Bank of England and the Fed purchased government bonds, what similar effects could the purchases have on the Swedish economy? And, above all – how do you expect the effects to be different in Sweden? Ulrika Andersson (13:56)

Answer: It works in about the same way in Sweden. The mechanisms are the same when it comes to pushing the general level of interest rates down. But it's always difficult to measure the result in detail.

I read a study from the BIS, "The costs of deflations: a historical perspective", which analyses the relationship between inflation/deflation and growth over hundreds of years. Its conclusion is that deflation is not something damaging to an economy, while asset bubbles are very damaging to an economy. The Riksbank is going all out to fight deflation (which isn't dangerous) and, at the same time, building up asset bubbles. Why? Henrik (13:58)

Answer: It's hard for me to comment on this study in particular. In general, both deflation and burst bubbles lead to economic troubles, so it's preferable to avoid both.

How much time do you think it will it take for all new banknotes to become "common"? Richard, aged 13 (14:00)

Answer: It will take place gradually and continually over 2016–2017. The new banknotes should start to dominate at some point around the summer of 2017, as the old banknotes will then become invalid.