af Jochnick: Low inflation and high indebtedness – expansionary monetary policy makes demands of other policy areas
"Inflation in Sweden is currently below the target of two per cent. But at the same time, household debt is a threat to the long-term stability of the development of the economy. How should we handle this challenge?" began Ms af Jochnick her speech on current monetary policy and macroprudential policy in Sweden on Thursday.
"As on so many previous occasions in recent years, the monetary policy deliberations in July concerned balancing the low inflation against the high household indebtedness and the risks this entails," observed Ms af Jochnick. "A very expansionary monetary policy is necessary to attain the inflation target of 2 per cent. At the same time, the low interest rates could increase the risks linked to household indebtedness. Major demands are therefore being made of other policy areas to deal with these risks," she continued.
Ms af Jochnick said that a framework for macroprudential policy could facilitate the monetary policy deliberations. She emphasised that the framework for macroprudential policy now in place made it possible to implement more precise measures to manage household indebtedness. But she pointed out that it had so far mainly resulted in sharper capital adequacy requirements for the banks, which increase the resilience of the banking system. One important piece of the puzzle remains, according to Ms af Jochnick, and that is to implement measures to directly limit household indebtedness. Ms af Jochnick pointed to the need for a broader spectrum of measures to influence household indebtedness in a more sustainable direction.
Ms af Jochnick summarised her speech by noting that the repo-rate cut in July was necessary to attain the inflation target, but that it is at the same time essential to take measures to deal with household indebtedness. She felt that creating a long-term sustainable development could require measures in several other policy areas. She mentioned as examples amortisation requirements, a review of the tax deductions for interest paid and measures to increase housing construction.
Read the whole speech: Low inflation and high indebtedness – expansionary monetary policy makes demands of other policy areas
