Slides, Ingves: Hearing on monetary policy

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Governor Stefan IngvesIntroduction on monetary policy Riksdag Committee on Finance 18 September 2012

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Perspectives on monetary policy Sweden’s economy has coped well throughout the financial and debt crises The inflation target has served as a foundation for monetary policy A lowered interest rate counteracts low inflation and supports economic activity

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Sweden has coped well in a turbulent international situation

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The financial crisis – dramatic fall in GDP, followed by strong recovery in Sweden GDP levelSources: The OECD, Statistics Sweden and the RiksbankNote. Index, 2007 Q4=100.

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From financial crisis to debt crisis in Europe Sovereign debts in various countriesSource: IMFNote. Public gross debt as a percentage of GDP Broken lines represent the IMF’s forecast.

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Improvements from the 1990s in Sweden Strong growth in productivity Reform of fiscal and monetary policy Stable public finances Low and stable inflation

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Sweden’s economy is holding up well

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Strong GDP growth GDP growth 2010 and 2011 in various regions and countriesSources: Bureau of Economic Analysis, Eurostat, IMF and Statistics SwedenNote. Annual percentage change.

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Large current account surplus in Sweden Current account balance 2011Source: IMFNote. Percentage of GDP

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Resilient Swedish labour market Unemployment, per cent Sources: Bureau of Labor Statistics, Eurostat and Statistics Sweden

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Low loan losses in Swedish banksNote. Summed up over four quarters, SEK billion, fixed prices, March 2012. Broken lines refer to the Riksbank’s forecast in Financial Stability Report 2012:1. Sources: Bank reports and the Riksbank

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Recent appreciation of the krona Trade-weighted exchange rate, TCW indexNote. Index, 18 Nov 1992 = 100Source: The Riksbank

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Perspectives on monetary policy and the inflation target

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Lower and more stable inflation Inflation in Sweden 1970-2012Note. Annual percentage change of the CPISource: Statistics Sweden

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The inflation target and inflation in figures January 1993: Inflation should be 2 per cent as of 1995, measured in terms of the CPI CPI inflation 1995-2011: 1.5 per cent* CPIF inflation 1995-2011: 1.8 per cent* Over half of the deviation from 2 per cent in CPI inflation can be explained by a falling interest rate trend *Measured using ’real-time data’, that is without reference to the change in calculation method introduced in 2005

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Confidence in the inflation target Actual and expected inflation, per centSources: Prospera Research and Statistics SwedenNote. Inflation measured by CPI. Expectations refer to money market agents.

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Unemployment reflects structural problems Unemployment and output gap, per cent Note. Output gap according to the production function approach. Sources: Statistics Sweden and the Riksbank

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The financial crisis a reminder of the risks on the housing and credit markets Real housing prices in various countriesNote. Index, 1996 Q1=100.Source: Reuters EcoWin

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The Riksbank has warned of the risks in the Swedish housing market Real housing prices in various countriesNote. Index, 1996 Q1=100.Source: Reuters EcoWin

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Household debt must be monitored carefully Household debt and post-tax interest expenditure, per cent of disposable incomeNote. Broken lines refer to the Riksbank’s forecast in Financial Stability Report 2012:1. Sources: Statistics Sweden and the Riksbank

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Risks must be taken into accountRisks on the credit and housing markets must be taken into account in monetary policy Other measures: macroprudential policy instruments, amortisation requirements, increased housing supply… But few of these are in place at present The principle of prudence has been successful

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Current monetary policy A lowered interest rate counteracts low inflation and supports economic activity

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Weak developments in euro area GDP, annual percentage change Sources: Bureau of Economic Analysis, Eurostat and the Riksbank

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Growth will slow down in the period ahead GDP, quarterly changes in per cent calculated as an annual rate, seasonally-adjusted dataSources: Statistics Sweden and the Riksbank

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Stronger krona Competition-weighted nominal exchange rateNote. TCW, Index, 18 Nov 1992 = 100Source: The Riksbank

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Labour market hindered by weak growth UnemploymentNote. Per cent of labour force, ages 15-74, quarterly data, seasonally-adjustedSources: Statistics Sweden and the Riksbank

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Last Updated: 8th March 2018

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