Ingves: Introduction on monetary policy
Governor Stefan Ingves opened the hearing on monetary policy at the Riksdag Committee on Finance by giving his view of the challenges facing the global economy, describing the situation in Sweden and giving the motives for the repo rate decision made by the Executive Board a couple of weeks ago:
The past couple of years have been rather dramatic, since the financial market turmoil erupted into an acute global crisis in autumn 2008. In international terms, the situation is still very uncertain and the recovery is slow in many areas. One of the challenges facing the global economy in coming years is the necessity to strengthen public finances in many countries.
The situation in Sweden is more favourable. One reason for this is the lessons we learned from the crisis at the beginning of the 1990s, not least that fiscal and monetary policy need stable, long-term frameworks. For example, in the fiscal policy area we introduced an expenditure ceiling and a surplus target, which are designed to prevent public finances being undermined or savings having to be made in inappropriate situations. These frameworks have created a security that is valuable in times like these, when there is great uncertainty in the world as a whole. It has also made it easier to provide powerful stimulation to the economy during the crisis.
It has become increasingly clear that the Swedish economy is growing strongly. Many indicators of developments in the real economy are now at very high levels and GDP outcomes have been surprisingly strong. Swedish exports are growing rapidly. Just as they fell when world trade declined, they are now increasing as export markets begin growing again. Public sector finances are strong, household savings have been high for a number of years and households are very optimistic. Altogether these create the conditions for an increase in consumption. The broad upturn in the economy has meant that Sweden is one of few countries in the OECD area where the labour market has clearly begun a recovery.
The assessment the Executive Board made a couple of weeks ago was that the repo rate needed to be raised by 0.25 percentage points and that further increases would be needed over the coming years to stabilise inflation close to the target and to attain normal resource utilisation. However, the weaker international outlook, with lower policy rates abroad, means that the repo rate does not need to be raised as quickly as was previously assumed.
Read the whole speech in the PDF file below.
