Thedéen: “Asset purchases should be made with caution”

“My current assessment is that asset purchases are primarily effective in countering financial crises. Asset purchases in the form of government bonds may in some cases be justified in times when monetary policy needs to become more expansionary, but the threshold for extensive purchases of bonds to safeguard the inflation target should be high.”

Erik Thedéen also commented on the financial market turmoil linked to the banking problems in the United States and Switzerland during the spring, and said that it is important to learn from crises. One consequence of this, according to Mr Thedéen, is probably that the global standards for financial regulation are likely to require a number of changes.

“One example of regulation already being discussed in the United States is the deposit guarantee scheme. In the case of Silicon Valley bank, we saw how easy it is to move money in seconds with just a click on the keyboard, while rumours spread quickly on social media. It is therefore necessary to find the right balance between on the one hand guaranteeing deposits to avoid a bank run, and on the other hand ensuring that creditors give the bank incentives to avoid excessive risk-taking.”

Mr Thedéen also highlighted the ongoing discussion among financial market participants, in academia and in the central banking world about the extent to which monetary policy should counteract the build-up of risks in the financial system.

“This is an interesting and important discussion that I am following closely. It is not unreasonable that a very expansionary monetary policy over a longer period of time leads to, among other things, high risk-taking and higher indebtedness. In such a situation, a sound risk assessment may be to raise the interest rate too early rather than too late. A necessary condition here, of course, is that the credibility of the inflation target is not affected and that this happens when other policies to safeguard financial stability do not fully succeed in limiting the risks. It is thus to be used in exceptional cases; the preventive work to safeguard financial stability falls to policy areas other than monetary policy.”

Monetary policy and fiscal policy are interdependent. Stable government finances are essential for price stability. Fiscal policy can also affect the Riksbank's ability to attain the inflation target in the short term. Mr Thedéen therefore concluded his speech by saying that there should be scope for an exchange of information:

“The Riksbank's independence is important to maintain confidence in the inflation target. But it does not prevent us from being able to discuss questions of relevance for monetary policy and its attainment with, for instance, the Riksdag Committee on Finance and the Ministry of Finance.”