Ingves and Jansson at the Riksdag Committee on Finance: Monetary policy supporting recovery and inflation

News, Speeches The Swedish economy has withstood the second wave of infection relatively well, supported by extensive economic policy measures. This comment was made by Governor Stefan Ingves in his introduction, when he and Deputy Governor Per Jansson took part in the first monetary policy hearing of the year at the Riksdag Committee on Finance.

At the same time, Mr Ingves pointed out that the recovery that has now begun is divided. Several service sectors, which employ many young people and people born abroad, are still severely affected. There is considerable uncertainty, and future developments are dependent not least on the progress of the vaccination process. But unlike many other crises, GDP is expected to gradually return to the pre-crisis level. This is partly because of the different nature of this crisis, but also because of the substantial economic policy measures implemented to deal with it.

Mr Ingves pointed out that “the various measures taken by the Riksbank and other central banks have meant that we have avoided the health crisis developing into a financial crisis.” The credit supply has continued to function and interest rates faced by households and companies have been kept at low levels. “Without the measures, the crisis would have been even worse for households and companies, and in particular unemployment would have been higher. But there is still considerable uncertainty, and monetary policy needs to remain expansionary to facilitate the recovery and contribute to inflation rising towards the target,” said Mr Ingves. 

Mr Jansson focused on inflation in his introduction. It is expected to show a clear increase going forward, but this is primarily due to temporary effects, such as rising energy prices. Underlying inflation will remain moderate. The Riksbank’s forecast is that inflation will fall back, but that it will then rise gradually after the summer as the economy recovers.

Mr Jansson also noted that the debate on inflation has changed recently. Now the risks of high inflation are being discussed, particularly in the United States. “I personally believe that the risk of higher inflation is around as great as the risk of lower inflation,” said Mr Jansson. “But after a long period of low inflation, it would not be a problem if inflation in Sweden overshoots the target for a period of time. I would not see any need to make monetary policy less expansionary because of this. Inflation that is too low, on the other hand, might need to be countered with more expansionary monetary policy, at least if problems arise regarding confidence in the inflation target. In that case there may also be a need for a lower repo rate,” said Mr Jansson. 

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Updated 16/03/2021