Deputy Governor Karolina Ekholm

Perspectives on monetary policy

and the inflation target

Riksdag Committee on Finance

18 September 2012

Making monetary policy decisions

The starting point is the forecast for factors we cannot influence

Which repo-rate path provides the best target fulfilment in terms of inflation and resource utilisation?

Are there other factors arguing against the repo-rate path?

Why lower repo rate/repo-rate path?

The starting point is the forecast for factors we cannot influence

Policy rates abroad

Which repo-rate path provides the best target fulfilment in terms of inflation and resource utilisation?

Lower repo-rate path even without a different forecast for policy rates abroad

Are there other factors arguing against the repo-rate path?

Doubtful, and if so clarification of how this affects the decision is necessary

Policy rates abroad

Forecast for policy rates abroad July 2011 (yellow curve)Per cent, forward rates from 22 June

Sources: National sources, Reuters EcoWin and the Riksbank

0

1

2

3

4

0

1

2

3

4

11 12 13 14

Forward rates, TCW

Policy rate TCW, Riksbank’s forecast

Forward rates, Sweden

Repo rate, Riksbank’s forecast

Forecast for policy rates abroad September 2012 (yellow curve)Per cent, forward rates from 31 August

Sources: National sources, Reuters EcoWin and the Riksbank

0

1

2

3

4

0

1

2

3

4

12 13 14 15

Forward rates, TCW

Policy rate TCW, Riksbank’s forecast

Forward rates, Sweden

Repo rate, Riksbank’s forecast

Target fulfilment in

terms of inflation and

resource utilisation

Monetary policy alternatives, Sept 2012Foreign interest rates according to the main scenario. Sustainable unemployment 6.5%

Repo rate

CPIF

Unemployment

Main scenarioLower repo rateHigher repo rate

Sources: Statistics Sweden and the Riksbank

0

1

2

3

4

0

1

2

3

4

10 11 12 13 14 150

1

2

3

0

1

2

3

10 11 12 13 14 15

6

7

8

9

6

7

8

9

10 11 12 13 14 15

Monetary policy alternatives, July 2012Foreign interest rates according to the main scenario. Sustainable unemployment 6.5%

Repo rate

CPIF

Unemployment

Main scenarioLower repo rateHigher repo rate

0

1

2

3

4

0

1

2

3

4

10 11 12 13 14 150

1

2

3

0

1

2

3

10 11 12 13 14 15

6

7

8

9

6

7

8

9

10 11 12 13 14 15

Sources: Statistics Sweden and the Riksbank

Monetary policy alternatives, April 2012Foreign interest rates according to the main scenario. Sustainable unemployment 6.5%

0

1

2

3

4

0

1

2

3

4

10 11 12 13 14 15

6

7

8

9

6

7

8

9

10 11 12 13 14 15

Repo rate

CPIF

Unemployment

Main scenarioLower repo rateHigher repo rate

0

1

2

3

0

1

2

3

10 11 12 13 14 15

Sources: Statistics Sweden and the Riksbank

Other factors?

Risks on the credit and housing markets should be taken into account if… The credit and housing markets constitute a

problem,…

…no one else is doing anything...

…and it is made clear how the repo rate is used for this purpose and how it is weighed against the costs in terms of poorer target fulfilment for inflation and unemployment

Have not been taken into account since autumn 2010 because… The credit and housing markets have showed a

more stable development In principle lower growth in household credits since

2006 and stagnating housing prices since the end of 2010

Prices of single-family dwellings and tenant-owned apartmentsIndex, January 2008 = 100

Source: Mäklarstatistik and Valueguard

Note. All indexes are for Sweden. Valueguard is a hedonic price index. Mäklarstatistik (tenant-owned apartments) is an index of prices per square metre and Mäklarstatistik (single-family dwelling) is an index of the C/I ratio.

70

80

90

100

110

120

130

70

80

90

100

110

120

130

06 07 08 09 10 11 12

Valueguard (single-family house)

Mäklarstatistik (single-family house)

Valueguard (tenant-owned apartment)

Mäklarstatistik (tenant-owned apartment)

Have not been taken into account since autumn 2010 because… Others have done something

Finansinspektionen’s mortgage cap 2010

It is unclear what is to be attained and how it is to be assessed