Svensson: Some problems with Swedish monetary policy and possible solutions
Deputy Governor Lars E.O. Svensson held a speech on Wednesday at the Fastighetsvärlden conference in Stockholm. There he discussed some problems he sees with Swedish monetary policy, the motives for his reservations against the repo rate decision and the repo rate path at the monetary policy meeting in October and at earlier meetings, and possible solutions to the problems.
Monetary policy should aim to stabilise inflation around the inflation target and resource utilisation around a normal level. According to Mr Svensson, the Riksbank has in practice conducted a tighter monetary policy than the mandate justifies, referring to growth being good, the repo rate being lower than normal, house prices and household debts needing to be limited and financial imbalances possibly building up. There has been no thorough analysis to support the tighter monetary policy. Mr Svensson claims that the Riksbank’s current high repo rate path will result in inflation undershooting the target and unemployment being too high. This is because continued repo rate increases in line with the published path will lead to much higher long rates than at present, and to a much stronger krona – a tighter policy that could strangle the recovery in the economy. Mr Svensson also presents proposals for improving background reports, forecasts and monetary policy in the future.
Read the speech in full in the PDF below.
