Hearing of the Riksdag Committee on Finance on monetary policy 2018

Governor Stefan Ingves opened the hearing by summarising the report. Robert Bergqvist and Anna Seim presented their views on the Account and on the monetary policy stance. After this, First Deputy Governor Kerstin af Jochnick commented on the discussion before committee members asked questions.

Stefan Ingves pointed out that target attainment had been good in recent years, CPIF inflation was at 2 per cent in both 2017 and 2018. At the same time, economic activity has been strong and the employment rate has been at the highest level for more than twenty years. During 2018, however, energy prices contributed a lot to CPIF inflation and there were questions regarding the strength of inflationary pressures during the year. But there were good conditions for inflation being around the target level and in December the Riksbank raised the repo rate for the first time since 2011, from −0.5 to −0.25 per cent. 

The Riksbank has over several years conducted a very expansionary monetary policy to safeguard confidence in the inflation target. The negative repo rate and purchases of Swedish government bondshave had an effect on other interest rates in the economy. This has helped both inflation and inflation expectations to rise to 2 per cent, after a negative trend up to 2014/2015.

The forecasts made by the Riksbank in 2016–2017 predicted CPIF inflation and economic developments relatively well on the whole. On the other hand, the krona has been weaker than expected and in the debate there has been a focus on the responsibility of monetary policy with regard to the development of the krona. Stefan Ingves noted that it is important to clarify that the starting point for monetary policy is that Sweden has an inflation target, and not an exchange rate target.

Kerstin af Jochnick discussed the basis for the monetary policy conducted by the Riksbank in recent years, describing three central issues that have coloured the debate:

• “Why is the inflation target necessary?”
• “Why is the target 2 per cent?”
• “Why is confidence in the inflation target important?”

“It is useful to bring the discussion down to this basic level, as this makes it easier to see where the dividing lines go,” said Kerstin af Jochnick and continued: “I believe there is general agreement that the inflation target has been good for Sweden, but sometimes arguments arise in the debate that do not seem to agree with this. If one advocates a different system for monetary policy, it would be interesting to hear how this would look and how it would outweigh the benefits with an inflation target.”

The level of the target has been debated more, but Ms af Jochnick noted that lowering the target below 2 per cent would make it more difficult for the Riksbank to counteract economic downturns. Finally, she said that the answer to the third question – that confidence in the inflation target is of decisive importance for the target to function as a stabilising benchmark – is the essential motive for the expansionary monetary policy conducted by the Riksbank in recent years.