Chat with Stefan Ingves 15 December 2010

Governor Stefan Ingves chatted in Swedish on the Riksbank's website. This is a translation into English of the questions and replies.


No question, I just wanted to wish you a Merry Christmas and lots of success in the New Year. Allan Karlsson

Answer: Thank you! My warmest thanks to everybody who has shown an interest in monetary policy over the past year. Merry Christmas and a Happy New Year to you all.




Why are the differences so large between the banks’ lending rates and the Riksbank’s repo rate? The banks are fleecing us normal citizens – don’t you agree? Christer

Answer: The banks have to cover the costs of their operations, in addition to which they also have to receive compensation for the risks they take in their lending. Otherwise they would have funding problems. If you’re not satisfied with your bank – change it!




How much do you think the Riksbank can affect the Swedish economy through its interest rate decisions, and how much do you think is determined by the global economy? Tilda

Answer: In Sweden, exports are about 50% of GDP, so we’re always affected by what happens internationally. The capital flows are also high. The interest rate can be used to even out these fluctuations to a certain degree, but there’s no way we can protect ourselves from everything that happens internationally. The most recent economic slowdown is a good example of our high level of international dependence.




Periods of high growth are always followed by setbacks, it seems. Is there actually anything we can do about the next setback in the economy, or are we just fooling ourselves into believing this? JJ

Answer: We want to contribute to a balanced development with limited economic fluctuations. Monetary policy can even out short-term fluctuations to a certain extent – this applies to both upswings and downswings. This will allow us to meet our inflation target of 2%, which, in itself, acts to stabilise economic development.




Hello. Have you ever thought about having one policy rate for households and another for companies? Slowing down companies now seems completely crazy, doesn’t it? Calle

Answer: No, the policy rate is the same for everybody, although, on the other hand, I could imagine slightly different rules for lending to households and to companies. In turn, this could create certain interest rate differences. Finansinspektionen’s ceiling on loans only applies to households, of course.




Is it reasonable to raise the interest rate when unemployment in Sweden is as high as it is? Sven

Answer: Unemployment has decreased much faster than we previously expected, and this trend is continuing. The interest rate continues to be low, contributing in this way to the economic recovery and strong growth. If the interest rate isn’t raised now, we’ll run the risk of too much inflation further ahead. This wouldn’t be good for the economy. Our most important task is to ensure that we meet our inflation target of 2%. This greatly benefits everybody in the long run.




Why are you so afraid of large debts among households – surely whether a debt is dangerous depends on the level of income? Borrower

Answer: You’re quite right, but debts are presently increasing more rapidly than income, and this situation can’t continue indefinitely. If things go too quickly, many borrowers may have problems repaying their loans further ahead – with general financial worries as a consequence, both for individual households and for the economy as a whole.




I think that the Riksbank is altogether too influenced by the positive economic situation in Stockholm and the risk of overheating on the Stockholm housing market. Sweden consists of more than just Stockholm. Are you really considering the effects of an interest rate increase on rural areas? In which way? Zalco

Answer: We consider the entire Swedish economy. Monetary policy isn’t formulated on the basis of what only happens in Stockholm.




Why would a low interest rate lead the economy to overheat and inflation to increase? maria

Answer: It would remain cheap to borrow, lending would increase, this money would be used for both consumption and investments, and the economy would risk overheating so that inflation would exceed our target of 2%.




Whose inflation expectations are the most important to monitor – households or market participants? And why? Elin

Answer: All inflation expectations. They’re slightly different because different categories of participant face different prices. Each category contributes in its own way when we make our inflation assessments.




What should I expect the repo rate to be at the end of 2012? Douglas

Answer: According to the present interest rate path, we expect the repo rate to be just below 3 per cent by then.




Hello. Even though card usage has increased seven-fold over the last decade, just as much cash is circulating in society today as it was 5 years ago (for example). How can that be? Jack

Answer: Economic activity is greater today than it was five years ago, while the volume of banknotes has remained fairly constant. This means that the use of banknotes, as a proportion of all transactions, is falling. Conversely, as the economy is growing, the number of card transactions is increasing.




You say that the interest rate path is a forecast, not a promise – but no matter how much the economy and inflation deviate from your forecasts, the interest rate path seems to be set in stone. Why? Kurt

Answer: This time, most of the changes in our forecast have been short-term in nature – while, in the slightly longer term, not much new has happened to affect our view of the rate of inflation and the inflation forecast. So there isn’t really any great reason to change the interest rate path.




Why should members of the public with reasonable loans be punished with higher interest expenses when it’s the banks themselves who’ve been fuelling inflation on the housing market? Why can’t the banks take responsibility for this development? Desirée Tedenmark

Answer: Yes, it’s important for both individual households and the banks to take responsibility for what happens. This lets us avoid creating excessive risks in the financial system, risks that Finansinspektionen, the Riksbank and other public sector participants will then be forced to deal with.




Hello. Which “pressure” do you consider to be most severe – (i) the rapid growth in Sweden or (ii) the problems in the eurozone? Regards, MHmarcus

Answer: At present, the economic development of Sweden is the factor playing the largest role as regards monetary policy. The problems in the eurozone are a risk that should be observed, but, according to the main scenario, these problems will be solved in an orderly manner. However, it may be many years until all of the central government finance problems abroad have been solved.




Hi there! Won’t another interest rate increase be harmful to Sweden’s economy? The krona has already appreciated against the euro and the dollar, and more interest rate increases will mean further appreciation. Surely this will have a negative impact on exports and the economy? Dove

Answer: On the contrary, without interest rate increases, we run the risk of the economy overheating and inflation becoming too high further ahead. The interest rate needs to be raised to achieve a balanced development of the economy in Sweden. The exchange rate weakened quite sharply before, and is now just above the level we had before the international crisis.




Is it really reasonable for the high electricity prices to affect the Riksbank’s decision to increase the interest rate because these are pushing the rate of inflation upwards? Those of us who own detached houses will be impacted by abnormal electricity prices twice. Jimmy Eklund

Answer: Our assessment is that electricity prices are temporarily high and so don’t impact monetary policy to any great extent. The determining factors are the rate of inflation in the period ahead and the level of activity in the Swedish economy.




How large a gap is it reasonable to have between our interest rate and the ECB’s interest rate? The more we raise ours, the larger the gap becomes. Björn

Answer: We set the interest rate to manage inflation and the economic development of Sweden. Just now, we need to raise the interest rate here. Growth is lower within the EMU, which also has a number of other problems. So we get a higher interest rate than the EMU, but there is no target for how large or small the interest rate differential ought to be.




What’s your opinion of the continued increase of housing prices in Stockholm? jonas karström

Answer: We have no target for housing prices, either in Stockholm or in the country as a whole. The development of housing prices and the mortgage market are a part of the overall assessment we make when we formulate Swedish monetary policy.


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