af Jochnick: Monetary policy and the current economic situation
The Riksbank's repo-rate decision in July means that inflation can attain the target within two years at the same time as taking into account the risks linked to household debt. This comment was made by First Deputy Governor Kerstin af Jochnick in a speech at Kalmar county administrative board on Thursday. In the speech, she described the motives for the repo-rate decision in July and summarised economic developments during the summer.
Ms af Jochnick began with a run-through of the assessment of economic developments described by the Riksbank in the July Monetary Policy Report. The report noted that growth in Sweden and abroad would be weaker than normal this year, but that there were signs that the recovery was gradually strengthening, both in Sweden and abroad. However, developments in the Swedish economy were divided, with a strong household sector on the one side and companies affected by poor international demand on the other side. Moreover, inflation was still low. During the summer new macro data has shown that the recovery in the euro area has begun and that the recovery in the United States is continuing, but that growth has slowed down in some parts of Asia. At the same time, mixed signals have been received regarding the Swedish economy, including a slightly weaker GDP growth than expected.
The Riksbank decided to hold the repo rate at a low level to support economic activity and ensure that inflation rises to the target of 2 per cent. Ms af Jochnick said that she considered this decision to be a reasonable balance, as it means that inflation will attain the target within two years while taking into account the risks linked to household debt. Furthermore, she explained why household debt is important for monetary policy and how important it is that macroprudential policy is implemented as soon as possible and can be used to prevent financial imbalances that might have a negative impact on the financial system.
Ms af Jochnick concluded by noting that "until macroprudential policy has been established, we will continue to conduct a flexible monetary policy that enables us to take into account a number of different factors, such as household debt. At the Riksbank we are busy working on new analyses and forecasts on which to base the next repo-rate decision. We will return with a new overall assessment in connection with the monetary policy meeting in September."
Read the entire speech.
