af Jochnick: My thoughts on monetary policy and financial stability
“Sweden’s increasing international dependence, the link between monetary policy and financial stability and the new policy area macroprudential policy are three factors that are particularly important to me in my new role as a member of the Executive Board of the Riksbank,” said First Deputy Governor Kerstin af Jochnick in Friday’s speech at SEB in which she presented her thoughts on monetary policy and financial stability.
She began by saying that perhaps the most important lesson she had learned from her previous experience is that Sweden has become increasingly dependent on the rest of the world.
The development of the European debt crisis is therefore the most important – and most uncertain – factor to take into account in monetary policy. The impetus to the Swedish economy from abroad will be limited over the next few years, mainly due to weak development in Europe. Economic activity will gradually improve, but this will take time. The inflation and economic prospects thus justify keeping the repo rate low for some time to come.
Another important factor – although it did not directly determine her stance at the latest monetary policy meetings – is the link between monetary policy and financial stability. Low interest rate levels may eventually create imbalances – relating to an excessive expansion of credit – that we must be wary of. It may therefore be necessary to take some aspects of financial stability into account when making monetary policy decisions.
Kerstin af Jochnick also pointed out that one of the most important lessons of the financial crisis is the need for macroprudential policy. Macroprudential policy can be seen as a complement to both traditional supervision and monetary policy when it comes to promoting financial stability. She therefore believed that there were good reasons why the Riksbank should play a major role in the work with macroprudential policy.
"I am really looking forward to continuing to work with monetary policy and financial stability at the Riksbank," concluded Kerstin af Jochnick.
Read the entire speech in the PDF file.
