Wickman-Parak: The repo rate path - experiences three years on
Around three years ago the Riksbank began publishing its own forecasts for the repo rate, and there were many reasons for doing this. It made the forecasts more consistent and it was now easier to evaluate the Riksbank’s forecast in relation to those of other analysts. We were also given an opportunity to describe alternative paths for economic developments, which was a good educational tool that further contributed to increasing transparency. Publishing a whole path for the repo rate was also one step towards becoming more open and clear. It also improved the chances of steering inflation expectations in the longer term. Experiences so far show that the work on the repo rate path and the publication of this path have functioned well. The monetary policy discussions focus more on long-term issues, and they now concern the whole repo rate path rather than an individual decision. This is good. Today the repo rate path is a natural part of monetary policy. Moreover, the repo rate path served us well during the crisis, in that we could clearly signal that the interest rate was expected to remain low over a long period of time.
Market participants' expectations of the repo rate have rarely been exactly the same as the Riksbank’s expectations. My assessment so far is that the deviations have not been a problem. It is not reasonable to believe that we and the market participants will always reach the same conclusions. Inflation expectations are well-anchored around the target, which is the most important indication that the market has confidence in monetary policy. All in all, I think that with the aid of the repo rate path we have succeeded relatively well in steering expectations.
Read the whole speech in the PDF file below.
