Thedéen: Inflation targeting – an important contribution to economic stability
Speech While inflation targeting has contributed to economic stability, there are challenges that we will continue to face in the future. This comment was made by Governor Erik Thedéen when sharing the Riksbank's experiences of working with an inflation target. In particular, he highlighted questions regarding financial stability, the exchange rate and central bank independence.
Date: 27/11/2025 15:00
Speaker: Governor Erik Thedéen
Place: Online
Erik Thedéen, governor.
The Riksbank's monetary policy strategy has made an important contribution to economic stability in Sweden over the past 30 years. Until the late 2000s, it contributed, together with other reforms, to inflation expectations falling and stabilising, to an increase in real economic growth and a decline in government debt. At the same time, it has often faced challenges, some of which have no obvious or clear-cut answer.
This is what Erik Thedéen said at a workshop organised by the National Bank of Ukraine, where he shared the Riksbank's experience of working with an inflation target for monetary policy. The exchange was part of the close cooperation between the Riksbank and the National Bank of Ukraine, which has deepened since Russia's full-scale invasion.
The main tools for financial stability are effective regulation and macroprudential policy, but we cannot rule out the possibility that monetary policy may need to address financial imbalances to attain the inflation target, said Mr Thedéen.
He also noted that when one has an inflation target, the exchange rate should be allowed to float freely. In practice, however, it is so important to firms and households that central banks often find it difficult to disregard changes in the exchange rate.
“But in normal times, central banks should steel themselves and not worry too much about short-term fluctuations, partly because they are notoriously difficult to understand and forecast. That said, however, we must endeavour to understand these developments as far as possible to be able to understand whether and how they should be taken into account in monetary policy.”
He concluded by emphasising that central bank independence is an important prerequisite for monetary policy with an inflation target, which requires transparency.
“The work on transparency can of course be demanding, but it has served us well by maintaining strong support for our independence and for our inflation targeting policy as a whole. In this endeavour, central banks have much to learn from one another's experiences.”