Skingsley: The economic situation and current monetary policy
“Following such a deep crisis, it seems reasonable to expect that it may take some time for inflation to return to the inflation target, both here and abroad. But this is not the same thing as saying we are abandoning the inflation target. The inflation target always guides monetary policy, and the present situation is no exception.” These were the words of First Deputy Governor Cecilia Skingsley speaking today at Dagens industri’s digital event Omstart Sverige.
Date: 03/09/2020 09:50
Speaker: First Deputy Governor Cecilia Skingsley
Place: Dagens industri’s digital event Omstart Sverige
The global economy has been hit hard by the ongoing pandemic, as confirmed by the second quarter’s outcome for GDP and the labour market. However, corporate sector confidence and other indicators have shown an overall improvement over the summer, both here and abroad. This is hopeful, Skingsley said, at the same time as she points out that the pandemic is not over. “We continue to be in a serious economic situation and the way forward is fraught by great uncertainty, not least as regards the spread of infection and restrictions to restrain it.”
In economic policy as a whole, a long series of measures of a historic scale have been deployed to support the economy’s ability to get through this shock. “The Riksbank's measures have contributed to bringing down the market rates that rose steeply at the start of the crisis, creating confidence that there is access to funding at low cost, and that lending to households and companies has been held up. In this way, we are supporting economic activity and inflation”, Skingsley said.
Inflation is expected to rise gradually towards 2 per cent. However, the depth of the crisis means that this will take some time. “But this should not be taken as a sign that we have abandoned the inflation target. On the contrary, the effects of the pandemic on the economy show how important it is for monetary policy to continue to be focused on maintaining the role of the inflation target as an anchor in price setting and wage formation”, Skingsley emphasised.
“Monetary policy plays an important role in alleviating recessions. It can be implemented quickly and is powerful. But the global low interest-rate environment is a challenge and a large number of countries and central banks now find themselves in the same boat”, said Skingsley. “We are all trying to manage low inflation with policy rates that are at or close to the lower bound. Other monetary policy tools such as securities purchases can and should be used. But we should also consider whether the monetary policy strategy can be developed so that monetary policy can continue to be able to counteract recessions and high unemployment. This is not a new question, but the current crisis has made it more relevant than ever”, Skingsley concluded.