Wickman-Parak: Many dimensions to well-balanced monetary policy
On 26 January, Deputy Governor Wickman-Parak made a speech at Swedbank in which she gave an account of her stance at the latest monetary policy meeting in December. Ms Wickman-Parak said that in the present situation, a well-balanced monetary policy entails weighing short-term imbalances in the form of low underlying inflationary pressures and low resource utilisation against counteracting tendencies that can be discerned towards the end of or beyond the forecast horizon. She believed that the repo-rate path presented by the Riksbank in December reflected such a balance rather well.
She pointed out that as monetary policy decision-makers, she and her colleagues on the Executive Board are forced to take a stance on a number of factors that are difficult to assess. It is important that these factors are discussed from several different perspectives. Ms Wickman-Parak pointed out that this is one reason why we have an Executive Board made up of economists with different backgrounds and expertise.
One of these complex factors concerns monetary policy expectations, which have been widely discussed recently. Ms Wickman-Parak pointed out in this context that it was difficult to interpret forward rates in terms of monetary policy expectations during the autumn because risk premiums around the world were under pressure in a way that was difficult to capture. The surprisingly strong development of the Swedish economy recently has meant, however, that monetary policy expectations relative to those for abroad have shifted upwards. This has led to an increase in the difference between Swedish and German interest rates and has also helped to strengthen the krona.
According to Ms Wickman-Parak other difficult-to-assess factors include the rapid development of house prices and household indebtedness. In the long term there is a risk that quite a number of Swedish households will build up financial imbalances that, when they are corrected, may have painful consequences for individual households and the Swedish economy. She noted that gradual repo-rate increases will reduce the risk of having to make painful corrections of financial imbalances in the period ahead.
Read the speech in full in the PDF below.
