Ingves: The monetary policy tool box when the policy rate is close to its lower bound
Which complementary monetary policy measures can be used in a situation in which the policy rate is close to its lower limit? Governor Stefan Ingves will discuss this issue on Friday morning when he participates in the Swedish Centre for Business and Policy Studies/SIFR Finance panel.
"Inflation in Sweden is very low at present. To encourage inflation to rise towards target, the repo rate has been cut to a very low level. In addition, the Riksbank has initiated the purchase of government bonds" explains Mr Ingves. "But there are several ways to make monetary policy more expansionary. We can and will do more if necessary", he states.
A series of complementary measures have also been used in other countries. The selection of these has depended, among other factors, on how well the transmission mechanism has functioned in the country in question. However, the common factor for the complementary monetary policy measures is that they bring down the general level of interest rates and increase the amount of money in society and thereby influence the economy.
Mr Ingves points out that the Riksbank is prepared to make monetary policy even more expansionary if this is needed to make inflation rise towards target. "We could cut the repo rate more and defer repo rate increases until a later date, purchase more government bonds or issue loans to companies via the banks. Neither would we wish to rule out foreign exchange interventions" says Mr Ingves.
Follow the link to see the slides Mr Ingves will show during his presentation to the finance panel.
