Svensson: Why a low repo rate for an extended period?
In this speech I would like to present my view of how monetary policy can best focus on stabilising both inflation and resource utilisation. I advocate an "extended" repo-rate path where "extended" refers to the period with a low repo rate of 0.25 per cent being extended until the end of the fourth quarter 2010. Here I explain why.
Over the past year I have advocated a more expansionary monetary policy with a lower repo rate and a lower repo-rate path. My reason for this has been that such a repo-rate path leads to better resource utilisation and a better attainment of the inflation target without threatening financial stability. However, at the monetary policy meeting in April I chose instead to advocate an "extended" repo-rate path. I thus supported the decision to leave the repo rate unchanged at 0.25 per cent, but entered a reservation in favour of the extended repo-rate path. My reason for this was that such a repo-rate path has the same effects as the lower repo-rate path that I previously advocated; that is a higher level of resource utilisation and a level of CPIF inflation closer to the target than the main scenario's repo-rate path.
The reason why I now choose to advocate an "extended" repo-rate path instead of a lower path is that an "extended" repo-rate should be more acceptable to my colleagues. It also has the advantage that it reduces the monetary policy decision to the question of when to begin increasing the repo rate from its current level – in July or September as in the main scenario, or in December as I advocate. I thus advocate December, as this provides a better stabilisation of both inflation and resource utilisation without threatening financial stability.
Read the whole speech in the PDF file below.
