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INTEREST RATES

Ingves gives support to rate hold

The governor of Sweden's central bank, the Riksbank, Stefan Ingves, has endorsed the decision to leave the bank's repo rate unchanged last month.

Published: 3 May 2010 15:15 CEST
Ingves gives support to rate hold

The governor was unable to attend the April 19 monetary policy meeting of the executive board due to the volcanic ash cloud affecting flights after attending a meeting of EU finance ministers in Madrid.

“It was appropriate to leave the repo rate unchanged at 0.25 per cent at the latest monetary policy meeting in April,” Ingves wrote in a commentary published on Monday in the meeting’s minutes. “I also believe that the forecast for the repo rate was reasonable.”

He added, “I support the analysis in the Monetary Policy Update and the conclusions drawn concerning economic developments, the repo-rate decision and the repo-rate path. Against this general background, I will add a few comments here, but these do not change the conclusions in the Update.”

Ingves expects a return to global growth at a “good” level, which should lift the segments that are important to Sweden in global trade. However, he pointed out that Swedish economic policy must confront imbalanced global growth because the world is divided.

“Growth in Asia and South America is rapid, while the recovery is moving more slowly in the USA and Europe,” he wrote. “This will entail a prolonged recovery in Sweden as Swedish exports to the EU are substantial.”

Ingves noted that the outcome of the Greek financial crisis is uncertain, but Sweden will likely not be affected.

“This should not have any significant impact on Swedish monetary policy,” wrote Ingves. “Swedish banks have a very limited exposure to the Greek market and any market effects will probably be indirect.”

The governor also pointed out that conflicting forces are pulling the Swedish economy in different directions, with a strong service sector and an industrial sector experiencing a substantial fall in export demand.

“This makes it more difficult to analyse the situation, but I share the assessment, which we have also made earlier, that we are moving towards a sustainable economic recovery at the same time as inflation is moderate with well-anchored inflation expectations,” he wrote.

Ingves added Sweden has had extremely low interest rates for “a rather long time.”

“The financial markets are now more stable and the recovery of the Swedish economy is continuing,” he wrote. “I therefore think that the time is right to gradually phase out the special loans that the Riksbank has offered. It is appropriate to shorten the maturity of the loans offered at a variable rate and the fixed-rate loans will soon fall due.”

The governor said he does not believe the withdrawal of the Riksbank’s stimulus incentives will be particularly dramatic.

“If [the Financial Supervisory Authority] introduces restrictions regarding leverage levels for mortgages, this will also de facto have a tightening effect,” he wrote. “This is a reasonable measure from the consumer protection point of view, but also given the division we can now see on the credit market with a limited demand for loans in the corporate sector and a high demand for loans in the household sector.”

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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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