Jansson: Swedish monetary policy after the financial crisis – myths and facts
Deputy Governor Per Jansson addresses the criticism of monetary policy in recent years at a speech given at the SvD Bank Summit. "It is important that monetary policy is discussed and evaluated, but to draw the right conclusions, the evaluation must be based on a correct description of what actually happened".
In brief, the criticism claims that the Riksbank has in recent years conducted a monetary policy "experiment", whereby it has used a high repo rate to try to prevent household debt rising, that this has led to a poor development in the Swedish economy, and that the Riksbank eventually has realised that its policy was wrong and made a 180-degree turn. Mr Jansson says that this picture is incorrect.
Economic activity and inflation decisive for repo-rate decisions in recent years
There appears to be a belief that concern over household debt has been the only reason for raising the repo rate after the financial crisis, says Mr Jansson. "However, the monetary policy conducted after the crisis has for the most part been governed by the expected development of economic activity and inflation over the coming years. Giving consideration to the risks associated with the developments in household debt and housing prices has been part of our assessment, but a relatively minor part." Mr Jansson draws attention to the general view of both Swedish and international analysts at the time the repo rate was raised to 2 per cent. "There was then a broad consensus that it would be necessary to continue raising the repo rate in the coming years." Mr Jansson emphasises that this monetary policy was considered compatible with a future inflation rate close to 2 per cent.
The Swedish economy has developed relatively well
He further notes that the Swedish economy has developed relatively well in recent years. "With regard to, for instance, employment and GDP growth, only a few countries have had a better development than Sweden; most have fared much worse." It is difficult to find support in actual figures for monetary policy having caused the economy to enter a deflationist state driven by poor development in the real economy, says the deputy governor.
Recent decisions are no radical turnaround
The repo-rate cuts in recent years are not the sign of a sudden insight that the policy conducted was wrong from the start, says Mr Jansson. Developments turned out rather differently than we and other analysts had expected. Important examples of this are the slowdown in international economic activity which became evident during the second half of 2011 and the fall in inflation at the end of 2013 and the beginning of 2014. Conditions changed and monetary policy has reacted to this. "Anyone who says they had predicted the current low inflation back when the repo rate increases began in 2010 must have had much greater insight than all Swedish and international analysts."
Read the whole speech: Swedish monetary policy after the financial crisis – myths and facts (PDF)
