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RIKSBANK

Riksbank chief calls for new financial framework

Stefan Ingves, the head of the Swedish Riksbank, has called on parliament to look over the existing financial regulatory framework - and do so expediently.

Published: 4 March 2010 11:15 CET

Ingves warned the parliamentary finance committee that Sweden should not rest on its laurels now that the financial markets had stabilized.

“The same action and spirit of cooperation displayed during the financial crisis increases the chances of an improved financial framework to establish a more stable base on which to build the future,” Ingves said in a Riksbanken statement.

Ingves repeated that it is now time to leave the record low “crisis” interest rates behind and indicated that the first base rate rises can be expected in the summer or in the beginning of the autumn.

In his speech to the committee, Ingves addressed the problem of the increased risk of continued price inflation in the housing market. Base rate rises are often too blunt an instrument with which to manage the prospect of a house price bubble as they impact the whole economy, he said.

Ingves urged banks to exercise sound judgement when lending money to property buyers and he said that the Financial Supervisory Authority (Finansinspektionen – FI) is considering new regulations for mortgage lending.

“Without wishing to pre-empt the inquiry, let me just state that as far as we can we should handle the problems before they occur. FI’s inquiry would appear to a step in the right direction,” he said.

The Riksbank has also appointed its own inquiry into the state of the Swedish housing market.

Ingves continued in his speech to talk about the economic situation in the Baltic states and the impact on major Swedish banks, which have substantial outstanding loans in the troubled region. He concluded that the situation had stabilized somewhat but that the danger had not passed.

“We are expecting credit losses to reach their peak during 2010, but also that Swedish banks will be able to handle the pressure,” he said.

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ECONOMY

Riksbank deputy ‘open to reconsidering raising rates in April’

Martin Flodén, the deputy governor of Sweden's Riksbank, has questioned whether the central bank needs to bring in further rate rises in April, following bank runs on two niche banks in the US and a crisis of confidence at Credit Suisse.

Published: 16 March 2023 16:20 CET
Riksbank deputy 'open to reconsidering raising rates in April'

Uncertainty in the financial market following bank runs in the US and a crisis at Swiss bank Credit Suisse could have changed the playing field, he told TT in an interview. 

“It affects which level the key interest rates need to be in order to have a contractive effect,” he said, referring to the recent days of financial market turbulence. “We can’t just look at key interest rates by themselves. It’s the key interest rate in combination with all of these developments which determines how tight financial policy will be.”

He said it was not yet obvious what decision should be taken. 

“It’s clear that monetary policy needs to stay tight, but what level of interest is that? We need to assess all of the current developments there.” 

‘Could go in different directions’

In theory, there could be such a serious financial crisis, with such a severe effect on lending and banks’ financing costs, that the central bank would be forced to adopt supportive measures, even lowering the key rate.

Flodén doesn’t think Sweden is in that situation, although he thinks there’s a possibility it could happen.

“It’s not something I can see happening right now, at least, although this could go in different directions.” 

He added that he doesn’t see any reason for any “special concern”, toning down the risk that a crisis for two smaller niche banks in the US and at Credit Suisse could affect the Swedish financial system.

“Of course, it could lead to some stress, but there aren’t actually any particular signs in Sweden, which are worrying me,” he said. 

Flodén is one of six members of the Riksbank executive board, led by Riksbank chief Erik Thedéen, responsible for making a decision on whether interest rates will go up again at the end of April.

The Riksbank has indicated that a rate hike of between 0.25 and 0.5 percent from the current 3 percent rate could be necessary.

Flodén described the most recent inflation statistics for February, where inflation unexpectedly rose to 12 percent, as “not good at all”. So-called KPIF inflation, where the effect of mortgage rates is removed, rose from 9.3 percent to 8.7 percent in January. The Riksbank’s goal is 2 percent.

“It’s clear that inflation is still far too high and that monetary policy needs to be focussed on combatting inflation,” he said, adding that inflation statistics for March will be released before the central bank is due to make a decision on whether to raise rates or not in April.

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