Erik Thedèen: Committee on Finance hearing on the Riksbank's operations and monetary policy

On Tuesday, the entire Executive Board took part in an open hearing at the Committee on Finance about the Riksbank's operations and current monetary policy. This was the first time that the Riksdag had invited board members to a hearing on the Riksbank’s overarching operations and the 2022 Annual Report.

Date: 14/03/2023 09:00

Speaker: Governor Erik Thedéen

Place: The Committee on Finance

Governor Erik Thedéen began the hearing by summarising the past year and noted that a great deal has happened at the Riksbank and abroad that has had an impact on operations:

"Last year, we saw inflation starting to rise sharply and interest rates have risen rapidly. Raising the policy rate was necessary to safeguard the inflation target, but at the same time, rising interest rates caused the market value of the Riksbank's asset holdings to fall. This unrealised decrease in value has in turn had a negative impact on the Riksbank’s financial result and, just like many other central banks around the world, we will report a significant loss for 2022. However, this does not affect the Riksbank's ability to carry out its tasks. In the longer run, however, the Riksbank’s capital needs to increase to ensure the bank’s financial independence. In addition, a new Riksbank Act has come into force and the bank has new management.”

Erik Thedéen also noted that digital developments in the payment market are proceeding at a rapid pace. At the same time, the Riksbank saw a temporary increase in the demand for cash following Russia's invasion of Ukraine.

“It is clear that the demand for cash increases in times of crisis, but it is important to remember that if it is to be possible to use cash in a crisis, we must also be able to use it in normal times. We consider that it must always be possible to at least purchase vital goods and services with cash. As a result of the new Riksbank Act, we have been given increased responsibility for cash management and during the year we have prepared the ground for the opening of new banknote depots. The Riksbank has also launched a new service for instant payments, RIX-INST, and work on an e-krona continues. Digital central bank currencies (CBDC) have become a major issue internationally during the year and Sweden is seen as a pioneer. We are active in various international partnerships linked to both CBDC and international payments”.

The second part of the hearing focused on current monetary policy. Erik Thedéen began by summarising the decision from February and noted that inflation is still far too high and that monetary policy needs to act to bring inflation back to 2 per cent within a reasonable period of time. He also commented on the ongoing bank problems in the United States.

“We are following developments in the financial markets, and we currently consider there to be no risk to financial stability in Sweden. Among other aspects, Swedish banks are subject to stricter regulatory requirements than the agents in the US that have encountered problems. Direct exposure to these agents is also limited among Swedish banks. At the same time, it is not unusual for turbulence in foreign capital markets to spill over into Sweden. We are therefore closely monitoring the situation and, as always, we are prepared to take action in the event of a rapid change”.

Deputy Governor Aino Bunge then went on to talk about what the new Riksbank Act means for monetary policy. Among other things, a clause has been added under which the Riksbank shall contribute to a balanced development of output and employment without disregarding the price stability target.

“Although this can be seen as an adjustment to existing practice, it probably affects how the public and elected representatives view monetary policy and how it is evaluated. We therefore need to be clearer in our communication with both our assessment of the real economy and how we consider it our monetary policy decisions”.

Aino Bunge also said that it is important to acquire a broad picture based on incoming data and forecasts for the economy and employment, but stressed that it is essential to bring down the high inflation in order to avoid even greater problems for the economy further ahead.

Updated 14/03/2023