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Deputy Governor Martin Flodén Monetary policy considerations in unusual times SEB, Västerås 7 October 2015
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Deputy Governor Martin Flodén Monetary policy considerations in unusual times SEB, Västerås 7 October 2015.

Jan 02, 2016

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Page 1: Deputy Governor Martin Flodén Monetary policy considerations in unusual times SEB, Västerås 7 October 2015.

Deputy Governor Martin Flodén

Monetary policy considerations in

unusual times

SEB, Västerås7 October 2015

Page 2: Deputy Governor Martin Flodén Monetary policy considerations in unusual times SEB, Västerås 7 October 2015.

Negative interest rate and asset purchases

Very low repo ratePurchases of government bonds

Source: The RiksbankPer cent and SEK billions respectively.

10 10 10 10

30 30 30

40–50 50

45

40

80–90

135

0

20

40

60

80

100

120

140

160

February March April JulyPolicy meeting

Page 3: Deputy Governor Martin Flodén Monetary policy considerations in unusual times SEB, Västerås 7 October 2015.

The Swedish economy is in pretty good shape

Stable GDP growth Labour market improving

Note. Annual percentage change and percentage of labour force, 15–74 years, seasonally-adjusted data.

Sources: Statistics Sweden and the Riksbank

Page 4: Deputy Governor Martin Flodén Monetary policy considerations in unusual times SEB, Västerås 7 October 2015.

Why a negative interest rate? Why are we not content with low inflation?

Inflation has been low for a long time

Interest rates are low internationally

The inflation target is not outdated

Monetary policy is having an impact

The negative interest rate is not that special

Aiming for lower inflation will not solve the problem of low interest rates

Page 5: Deputy Governor Martin Flodén Monetary policy considerations in unusual times SEB, Västerås 7 October 2015.

Why a negative interest rate? Why are we not content with low inflation?

Inflation has been low for a long time We are tolerant of deviations from the target It is not a question of fine tuning

Page 6: Deputy Governor Martin Flodén Monetary policy considerations in unusual times SEB, Västerås 7 October 2015.

Inflation has been low for a long timeAnnual percentage change

Note. The CPIF is the CPI with a fixed mortgage rate. Sources: Statistics Sweden and the Riksbank

Page 7: Deputy Governor Martin Flodén Monetary policy considerations in unusual times SEB, Västerås 7 October 2015.

Why a negative interest rate? Why are we not content with low inflation?

Inflation has been low for a long time

Interest rates are low internationally We cannot deviate too much from them

Page 8: Deputy Governor Martin Flodén Monetary policy considerations in unusual times SEB, Västerås 7 October 2015.

Record-low policy rates internationallyPer cent

Note. ECB refers to EONIA and is a monthly average. Sources: The Bank of England, the ECB, the Federal Reserve Bank of New York and the

Riksbank

Page 9: Deputy Governor Martin Flodén Monetary policy considerations in unusual times SEB, Västerås 7 October 2015.

International real interest rates have fallen

Source: The OECD and the RiksbankNote. Quarterly data, two-year moving average.

-4

-2

0

2

4

6

8

10

12

-4

-2

0

2

4

6

8

10

12

90 95 00 05 10 15

DenmarkFinlandNorwayJapanFranceCanadaUnited KingdomUSAGermanySweden

Page 10: Deputy Governor Martin Flodén Monetary policy considerations in unusual times SEB, Västerås 7 October 2015.

Why a negative interest rate? Why are we not content with low inflation?

Inflation has been low for a long time

Interest rates are low internationally

The inflation target is not outdated despite globalisation and digitisation

Page 11: Deputy Governor Martin Flodén Monetary policy considerations in unusual times SEB, Västerås 7 October 2015.

Higher inflation in other countriesHICP excluding energy

Note. Annual percentage change. For the US the CPI-U (Consumer Price Index for all Urban Consumers) excluding energy is shown.

Sources: Eurostat and US Bureau of Labor Statistics

-1

0

1

2

3

4

-1

0

1

2

3

4

09 11 13 15

United Kingdom

Germany

USA

Sweden

Page 12: Deputy Governor Martin Flodén Monetary policy considerations in unusual times SEB, Västerås 7 October 2015.

-30

-20

-10

0

10

20

30

-30

-20

-10

0

10

20

30

00 02 04 06 08 10 12 14

Inflation is "a general rise of the price level"Annual percentage change

Sources: Statistics Sweden and the Riksbank

The rate of increase in the CPIF is the average of the rate of price increase for several thousand goods and services!

CPIFElectronics

Note. The CPIF is the CPI with a fixed mortgage rate.

Page 13: Deputy Governor Martin Flodén Monetary policy considerations in unusual times SEB, Västerås 7 October 2015.

Why a negative interest rate? Why are we not content with low inflation?

Inflation has been low for a long time

Interest rates are low internationally

The inflation target is not outdated

Monetary policy is having an impact but is hitting strong headwinds, particularly from abroad

Page 14: Deputy Governor Martin Flodén Monetary policy considerations in unusual times SEB, Västerås 7 October 2015.

The repo rate influences lending ratesPer cent

Sources: Statistics Sweden and the Riksbank

Note. The lending rate to households refers to loans for housing purposes. Deposit rate refers to households and companies.

Page 15: Deputy Governor Martin Flodén Monetary policy considerations in unusual times SEB, Västerås 7 October 2015.

... and the exchange rateSEK/EUR

Note. Broken lines mark monetary policy decisions in 2015. Sources: Macrobond and the Riksbank

Page 16: Deputy Governor Martin Flodén Monetary policy considerations in unusual times SEB, Västerås 7 October 2015.

Companies expecting higher prices

Note. Sales prices, expectations among retailers, net figures. Refers to the three months immediately following date of survey. Broken line refers to average since May 2003.

Source: National Institute of Economic Research

-10

0

10

20

30

-10

0

10

20

30

12 13 14 15

Sales prices, expectations

Page 17: Deputy Governor Martin Flodén Monetary policy considerations in unusual times SEB, Västerås 7 October 2015.

Why a negative interest rate? Why are we not content with low inflation?

Inflation has been low for a long time

Interest rates are low internationally

The inflation target is not outdated

Monetary policy is having an impact

The negative interest rate is not that special Monetary policy continues to have normal impact No negative rate for households Few technical problems

Page 18: Deputy Governor Martin Flodén Monetary policy considerations in unusual times SEB, Västerås 7 October 2015.

Experiences of the negative rate

Normal impact in the economy Lending rates fall with the repo rate No negative rate for households The banks' net interest income and profits remain high

Technical problems? No increased demand for cash The FRN market IT systems

Page 19: Deputy Governor Martin Flodén Monetary policy considerations in unusual times SEB, Västerås 7 October 2015.

Why a negative interest rate? Why are we not content with low inflation?

Inflation has been low for a long time

Interest rates are low internationally

The inflation target is not outdated

Monetary policy is having an impact

The negative interest rate is not that special

Aiming for lower inflation does not solve any problems

To bring the interest rate level up, we need: higher international growth and growth expectations higher Swedish inflation and inflation expectations

Page 20: Deputy Governor Martin Flodén Monetary policy considerations in unusual times SEB, Västerås 7 October 2015.

Why is the inflation target important? The important thing is to have a target -

something to guide price and wage formation

Confidence is important Is not created by changing the target

Page 21: Deputy Governor Martin Flodén Monetary policy considerations in unusual times SEB, Västerås 7 October 2015.

Risks linked to low interest rates

Housing prices and household debt are increasing fast!

We cannot deviate too much from monetary policy in other countries

Slightly higher repo rate will hardly solve these problems

Targeted measures are needed

Low interest rates are best countered by expansionary monetary policy

Otherwise we will have to live with a low rate for even longer

Page 22: Deputy Governor Martin Flodén Monetary policy considerations in unusual times SEB, Västerås 7 October 2015.

The Riksbank's forecast Economic activity in Sweden strengthening

International recovery

Rising inflation

Risks to the rise in inflation

Page 23: Deputy Governor Martin Flodén Monetary policy considerations in unusual times SEB, Västerås 7 October 2015.

-1

0

1

2

3

4

-1

0

1

2

3

4

10 12 14 16 18

CPIF excluding energy

CPIF

CPI

Inflation rising towards the target

Sources: Statistics Sweden and the Riksbank

Annual percentage change. The CPIF is the CPI with a fixed mortgage rate.

Low interest rates in Sweden

Stronger economic activity in Sweden and other countries

Weaker kronasince last year

Page 24: Deputy Governor Martin Flodén Monetary policy considerations in unusual times SEB, Västerås 7 October 2015.

Risks to the rise in inflation

Central banks out of step

Rapid appreciation of the krona - a risk

to the rise in inflation

Low inflation for a long time

How quickly will inflation rise?

Concerns in emerging economies

Fall in oil price

Page 25: Deputy Governor Martin Flodén Monetary policy considerations in unusual times SEB, Västerås 7 October 2015.

Continued high level of preparedness

Important that the upward trend in inflation continues

Ready to act even between ordinary meetings

Page 26: Deputy Governor Martin Flodén Monetary policy considerations in unusual times SEB, Västerås 7 October 2015.

Thank you!