af Jochnick: Monetary policy and macroprudential supervision
A functioning framework for macroprudential policy would improve the conditions for ensuring that the Riksbank attains its two main objectives: price stability and financial stability. This was observed by First Deputy Governor Kerstin af Jochnick when she held a speech in Stockholm on Friday on the topic of monetary policy and the new policy area of macroprudential policy, and the ways in which these two areas overlap.
Ms af Jochnick began by noting that monetary policy has gradually become more expansionary over the past year, which has been necessary to meet the inflation target and give support to economic activity, but that there has been reason to also give some consideration to household debt.
“In the absence of a clear framework for macroprudential policy, we have discussed the risks linked to the high level of household debt in Sweden at our monetary policy meetings. This is because we have wanted to avoid the consequences that many other countries have experienced as a result of high indebtedness and falls in house prices,” continued Ms af Jochnick, who also observed: “I believe that macroprudential policy, once it is up and running, will be in a better position than monetary policy to manage these risks, as it offers tools that are more effective than the repo rate for these purposes.”
Ms af Jochnick also said that the Riksbank has an important role to play in macroprudential supervision in Sweden, partly because we have long conducted analyses in this field, and partly because there are strong points of contact between monetary policy and macroprudential policy. Further, Ms af Jochnick considered it extremely important to create a clear mandate and efficient tools for macroprudential policy in Sweden. In this context, she commented on the Financial Crisis Committee’s recently published proposal for macroprudential policy in Sweden. She felt that the proposal did not provide a clear framework for macroprudential supervision in Sweden, also pointing out that it is not in line with the ESRB's recommendation or with the practice in other EU countries.
In conclusion, Ms af Jochnick emphasized that it is desirable that the Riksbank should be able to use the policy rate to an even greater extent to stabilise inflation and the real economy in the future, and that more appropriate tools than the repo rate can be used to reduce the risks of financial imbalances. A functioning framework for macroprudential policy can improve the conditions for ensuring that the Riksbank attains its two main objectives: price stability and financial stability.
You can read the entire speech in the PDF file.