Chat with Stefan Ingves 27 October 2016

Many thanks for all your interesting questions. I hope that you all have a good day! Regards, Stefan Ingves.

Hi Stefan! What's causing the low inflation? Is it decreased prices for certain product groups? Daniel (13:32)

 
Answer: It's low demand in general for goods and services in the global economy. The goods/services that aren't rising in price so much vary from country to country. In many places, prices for goods have fallen, while prices for services are continuing to rise. Sweden is one example of this trend.

Hi Stefan. Your forecast shows an interest rate cut in 2017. Is this really the right way to go when households' debts are just increasing? Patric (13:35)

Answer: A cut is not entirely certain - we're making a forecast of future interest rates. The repo rate needs to be low now so that we can get inflation up. One side effect of this is increasing debts, but this matter can be managed, e.g. by abolishing tax reductions for interest expenses or by introducing a debt-to-income limit. But these are measures that the politicians must decide upon.

Hi Stefan. How many government bonds can the Riksbank purchase? Patric (13:36)

 
Answer: There is no limit on how many bonds we can buy. This is ultimately determined by monetary policy and what we consider to be most appropriate.

Hi Stefan. Wouldn't it be better for inflation if money was deposited directly in citizens' bank accounts, rather than in the banks' accounts? Jan (13:39)

Answer: We act via the financial sector, so depositing "new" money directly into citizens' accounts is not an option. With the low interest rates we have today and the bond purchases we are carrying out, our assessment is that inflation will be around two per cent in 2018.

Hi Stefan. Has the Riksbank discussed so-called 'helicopter money'? People have to buy things. Jan (13:41)

 
Answer: No, we haven't discussed so-called helicopter money as a part of monetary policy. Helicopter money would swallow up our equity, so the question hasn't arisen.

When will your forecasts start to be correct? Erik Andreasson (13:42)

 
Answer: We try to make the best forecasts we possibly can. The world is uncertain and so, sometimes, forecasting errors are also made - this affects all forecasters. On average, over time, we make fairly good forecasts.

Why is the repo rate negative?! Please give me a simple answer. Dick right (13:44)

 
Answer: Because then you have to pay to deposit your money in an account in the Riksbank. So one alternative is to spend the money instead, which causes prices to rise and inflation to move towards two per cent.

Hi Stefan. When did you start working at the Riksbank and what has your greatest challenge been since then? Patric (13:47)

 
Answer: I started in 2006. The global financial crisis of 2007–2009 and, in Sweden's case, the crisis in the Baltic states formed a particularly large challenge in which it was all too easy to make a wrong move. Since then, it has been a long-lasting and major challenge to go down to negative interest rates so as to bring inflation up to two per cent.

Hi Stefan. Will the Riksbank's work be affected by the outcome of the presidential election in the United States? Magnus (13:49)

Answer: Not directly. We're monitoring how the election is affecting the US economy, and the way it develops may, in turn, affect the world economy and thereby also indirectly affect Sweden.

Hi Stefan. If Sweden should now enter a recession, what weapons would you have to use, considering you already have a historically low repo rate? Magnus (13:50)

Answer: We could cut the repo rate more, we could purchase more government bonds or other bonds, and we could lend money directly to the banks, who would, in turn, lend the money on to companies.

Hi Stefan. Now that interest rates will be very low for a long time to come, isn't there a risk that households will get used to it and borrow too much? Patric (13:51)

Answer: Yes, there's a clear risk. This is exactly why we nag so much about households' large loans and point out that the current level of interest rates won't last for ever.

Hi Stefan. Is it impossible for the Riksbank to bring up inflation at the same time as it fights households' high levels of indebtedness? Patric (13:53)

Answer: It's difficult to do two different things at the same time with one tool (the repo rate), which is why a combination of measures is needed, i.e. removing tax reductions for interest expenses or raising property tax within the area of the housing market. This would let us manage the repo rate and the exchange rate in such a way as to bring inflation up to two per cent.

Hi Stefan. Is your forecast more or less a promise of a repo-rate cut in December or at the start of next year? Anna (13:54)

Answer: No, it's just a forecast, not a promise. If the world changes, we might also have to change our minds.

Hi Stefan. When you set the repo-rate level on the basis of inflation, do you look at more measures than the CPI and the CPIF? Fredrik (13:56)

Answer: Yes, we do. As well as the CPI and CPIF, we also usually look at the CPIF excluding energy and various other, narrower measures, where we exclude goods and services that usually fluctuate heavily in price.

Why doesn't the Riksbank cut the inflation target to 1.5%? Robert Rönn (13:59)

Answer: That would be too easy! We've long been agreed in Sweden that two per cent is a good, balanced target and is not something that should be changed lightly. Changing it once would create uncertainty over what the target could actually be set at in the future. And that wouldn't be good for the Swedish economy.

Hi Stefan. 2008 was the last year you had a normal repo-rate level of 4.75%. How many years do you think it'll take before we have those levels again? Bengt (14:01)

Answer: That's far beyond our forecast horizon, so not in the near future. In our forecast, we expect the repo rate to be zero some way into 2019.