Ekholm: Weak international public finances and Swedish monetary policy
Deputy Governor Karolina Ekholm held a speech at the Swedish Association of Local Authorities and Regions on Thursday, in which she described monetary policy in Sweden in the light of the challenges presented by weak public finances abroad. She also explained her own motives at the monetary policy meeting in October, when she entered a reservation against the decision to raise the repo rate to 1 per cent, and against the forecast for the repo rate, the “repo rate path”.
Ms Ekholm described how the economic and financial crisis has contributed to a further deterioration in public finances abroad, particularly in the advanced economies. Several countries are therefore facing large savings measures, which mean that monetary policy may need to remain expansionary to support the economic recovery. Ms Ekholm observed that if interest rates in other countries remain low, while interest rates in Sweden are raised, we can expect the krona to strengthen. This would in turn reduce inflationary pressure in Sweden, as import prices and resource utilisation will be suppressed. The expected lower inflationary pressure was justification for her reservation at the October meeting, said Ms Ekholm.
Read the speech in full in the PDF below.
