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FINANCIAL CRISIS

Riksbank head: financial crisis ‘over’ in Sweden

The head of Sweden's central bank said on Thursday that the financial crisis is over, but warned about the potential risks associated with an increasingly strong krona.

Published: 3 March 2011 11:31 CET
Riksbank head: financial crisis 'over' in Sweden

Riksbank Governor Stefan Ingves described the Swedish economy as fully recovered during a hearing on monetary policy during a Thursday morning hearing in front of the the Riksdag Committee on Finance.

“Output has largely returned to the pre-crisis level and unemployment is in retreat. Our assessment is that the high growth rate in the economy will gradually decrease in the period ahead and will approach normal levels,” he said.

World commodity prices are rising and resource utilisation is increasing, which will contribute to higher inflation in the coming period, Ingves explained.

“The Swedish economy and monetary policy are normalising. A balanced development of the Swedish economy assumes a gradual increase in the repo rate towards more normal levels.”

Ingves also argued that the financial crisis mainly manifested itself in Sweden in the form of decreased demand from abroad.

“World trade fell heavily, as did Swedish exports. Sweden is a small, open economy that is very export-dependent, and GDP fell by more than 5 per cent in 2009, which was the largest fall since the Second World War,” he said.

According to new figures, GDP growth amounted to 5.5 per cent in 2010. This is the highest growth since 1970 and Sweden is now among those economies with the highest GDP growth rates in the world. At the same time, the indicators are very strong, suggesting continued high levels of growth throughout early 2011.

“All in all, it can be said that the financial crisis is now behind us and that the situation is in the process of normalisation. This also requires a normalisation of monetary policy in the form of rising repo rates in the years ahead,” he said.

Ingves warns, however, that a too strong currency could mean future crises.

“It may form a ‘problem’ in so far as the demand for Swedish exports will decrease and inflation may not increase in line with expectations, as imported goods become cheaper. Should this be the case, it may not be necessary to increase the repo rate as rapidly. But let me clearly emphasise that the Riksbank has no target for the level of the exchange rate,” 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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