My monetary policy assessment Riksdag Committee on Finance 2 September 213 Deputy Governor Cecilia Skingsley
My monetary policy assessment There are reasons for an even lower repo rate... Growth is weak and resource utilisation is low Inflationary pressures are low...but stronger reasons for an unchanged rate The repo rate is already low supports the recovery Signs of economic improvement already visible Risks associated with household indebtedness
Weaker development in Sweden we see a division in the economy Industrial and service output, index, 27 = 1 11 11 15 15 1 1 95 95 9 9 85 85 8 75 Services output index Manufacturing output index 8 75 7 4 6 8 1 12 7 Source: Statistics Sweden
Inflationary pressures are low CPI and CPIF, annual percentage change 5 4 CPIF CPI 5 4 3 3 2 2 1 1-1 -1-2 8 9 1 11 12 13 14 15 16-2 Note. The CPIF is the CPI with a fixed mortgage rate. Sources: Statistics Sweden and the Riksbank
Why not an even lower repo rate? Repo rate, per cent 5 4 July September 5 4 3 3 2 2 1 1 7 9 11 13 15 Note. Outcome data are daily rates and forecasts are quarterly averages. Source: The Riksbank
The repo rate is already low supports the recovery
The repo rate is very low in an historical perspective Real repo rate, per cent, quarterly averages 16 12 8 Real rate (3m rate - households' inflation expectations according to the NIER) Real rate (repo rate- households' inflation expectation according to the NIER) Real repo rate (MPU September 213) 16 12 8 4 4-4 8 85 9 95 5 1 15-4 Note. The real repo rate is calculated as a mean value of the Riksbank's repo-rate forecast for the year ahead minus the inflation forecast (CPIF) for the corresponding period. Source: The National Institute of Economic Research and the Riksbank
Signs of economic improvement already visible
Positive signals in the euro area this also applies to the underlying structural problems Change in unit labour costs for different countries in the euro area between 28 and 212, percentage points 15 15 1 1 5 5-5 -5-1 -1-15 -15 Note. The GIIPS countries (Greece, Ireland, Italy, Portugal and Spain) are reported as blue columns. Source: The OECD
The imbalances between the euro countries are declining Changes in current account for different countries in the euro area between 28 and 212, per cent of GDP 12 12 9 9 6 6 3 3-3 -3-6 -6 Note. The GIIPS countries (Greece, Ireland, Italy, Portugal and Spain) are reported as blue columns. Source: The OECD
Sources: Morgan Stanley Capital International, Reuters EcoWin, Standard & Poor's and STOXX Limited Increased optimism on the financial markets Stock market developments, index, 3 January 26 = 1 18 18 16 16 14 14 12 12 1 1 8 8 6 4 Emerging markets (MSCI) USA (S&P 5) Euro area (EuroStoxx) Sweden (OMXS) 6 8 1 12 6 4
Sentiment has improved among households and companies in Sweden Confidence indicators, index 13 12 Confidence indicator, total industry Confidence indicator, households 13 12 11 11 1 1 9 9 8 8 7 7 6 2 4 6 8 1 12 6 Note. average = 1, standard deviation = 1 Source: National Institute of Economic Research
Risks associated with household indebtedness
Household indebtedness has risen rapidly and is high in an international perspective Household indebtedness in different countries, as a percentage of disposable income 35 35 3 3 25 25 2 2 15 15 1 1 5 5 Note. The figures refer to December 211 Source: The OECD
We want to avoid problems similar to those several other countries have suffered Real housing prices in different countries, index, 1996 Q1 = 1 3 25 2 Ireland Spain Denmark USA UK Sweden 3 25 2 15 15 1 1 5 5 8 85 9 95 5 1 Source: Reuters EcoWin
An adjustment in the housing market can have serious consequences Unemployment in countries hit by a fall in the housing market 35 3 25 Ireland (-47.2 procent) Spain (-3.8 procent) Denmark (-27.6 procent) USA (-26.7 procent) UK (-12.9 procent) Sweden (. %) 35 3 25 2 2 15 15 1 1 5 2 4 6 8 1 12 5 Note. Unemployed as a percentage of the labour force, index, 27 = 1. The figures in brackets refer to the fall in real house prices from the peak to the trough. Source: The OECD
Announcement on macroprudential policy welcome Clear allocation of responsibility an important step Good that measures have already been announced, e.g. higher risk weights on mortgages and better amortisation culture An effective macroprudential policy can reduce the need to take financial imbalances into account in the reporate decisions
Low repo rate stimulates the recovery Repo rate, per cent 5 4 July September 5 4 3 3 2 2 1 1 7 9 11 13 15 Note. Outcome data are daily rates and forecasts are quarterly averages. Source: The Riksbank