Skingsley: Reasonable expectations of monetary policy
There may be less need to take household indebtedness into account in the repo-rate decisions once the macroprudential policy instruments are in place and in use. This was one of the points made by Deputy Governor Cecilia Skingsley when she spoke at Danske Bank on Thursday. She also gave an account of her thinking ahead of the monetary policy decisions in July and September and her thinking on monetary policy in general.
Ms Skingsley highlighted two factors that contributed to her decision to keep the repo rate unchanged in both July and September. First, the economic outlook has improved. Second, we need to continue to manage the risks associated with household indebtedness.
Ms Skingsley pointed out that the repo rate is currently at an historically-low level. According to the Riksbank's forecasts, this will contribute to inflation reaching the target of 2 per cent within the forecast period at the same time as resource utilisation will improve. Although the global economy is still weak, there is potential for a recovery. The situation is better in Sweden today compared to that in many other countries, but there is still work to be done to establish an effective structure for macroprudential policy. She said that this was a matter of urgency. With macroprudential policy in place we will be better able to manage the risks associated with the high level of household debt.
Ms Skingsley pointed out that although there is currently scope for a somewhat more expansionary monetary policy in the short term we must remember that monetary policy is not perfectly precise, and we need to weigh the potential risks and rewards against each other. She said that we must have reasonable expectations of the rewards that monetary policy can provide in relation to the risks that exist. Ms Skingsley noted that the monetary policy now being conducted offers the possibility of good economic development in the short term and sustainable development in the long term.
Read the entire speech.
