Introduction on
monetary policy
Riksdag Committee on
Finance
23 February 2012
Riksbank Governor Stefan Ingves
Today’s presentation
Background
Recent developments and monetary policy
Current monetary policy
Background
Strong recovery from financial crisis in
2010 and 2011
GDP growth in Sweden and the world
6
6
4
4
2
2
0
0
-2
-2
-4
-4
Sweden
The world
-6
-6
00
02
04
Note. Annual percentage change, calendar-adjusted data.
Broken column and line refer to the Riksbank’s forecast in February 2012.
06
08
10
Sources: The IMF, Statistics Sweden and the Riksbank
Background
Large differences between regions
GDP growth in 2010 and2011 in different regions and countries
10
10
9
9
8
2010
2011
8
7
7
6
6
5
5
4
4
3
3
2
2
1
1
0
0
Euro area
Note. Annual percentage change.
2011 refers to the Riksbank’s forecast in February 2012
USA
BRIC
Sweden
Sources: Bureau of Economic Analysis, Eurostat, IMF, Statistics Sweden
and the Riksbank
Background
Poorer outlook in second half of 2011

We have for some time been expecting lower
growth after 2010 and 2011
The question was how large the decline would be

Clear signs in autumn 2011 – the decline will
be much greater than expected
Background
Debt crisis in Europe marked the autumn…
Government bond yields in Sweden and countries in the euro area
40
40
Sweden
Germany
Ireland
Italy
Spain
Portugal
Greece
35
30
25
35
30
25
20
20
15
15
10
10
5
5
0
0
06
Note. 10-year maturity, per cent
07
08
09
10
11
12
Source: Reuters EcoWin
Background
…which affected Sweden
National Institute of Economic Research’s economic tendency survey
120
120
110
110
100
100
90
90
80
80
The Economic Tendency Indicator
Mean
70
70
00
01
02
03
04
Note. Index, average = 100, standardavvikelse = 10
05
06
07
08
09
10
11
12
Source: National Institute of Economic Research
Background
Pause in policy rate increases followed by
cut in December
Policy rates
6
6
USA
Euro area
5
5
Sweden
4
4
3
3
2
2
1
1
0
0
06
Note. Per cent
07
08
09
10
11
12
Source: Reuters EcoWin
Current monetary policy – present status
Weaker export at the end of last year…
Goods exports
120
120
110
110
100
100
90
90
80
80
70
70
60
60
00
01
02
03
04
05
06
Note. Index, 2005 = 100, fixed prices, seasonally-adjusted data
Three-month moving average. Fixed prices calculated by the Riksbank.
07
08
09
10
11
12
Sources: Statistics Sweden and the Riksbank
Current monetary policy – present status
…but more positive on financial markets
recently
Stock markets
160
160
Sweden (OMXS)
Euro area (Euro Stoxx)
140
140
USA (S&P 500)
120
120
100
100
80
80
60
60
40
40
04
05
Note. Index, 3 January 2006 = 100.
06
07
08
09
10
11
12
Source: Reuters EcoWin
Current monetary policy – the forecast
Good global growth, but weak in the euro
area
GDP growth in different parts of the world
12
12
Euro area
USA
10
10
BRIC
The world
8
8
6
6
4
4
2
2
0
0
-2
-2
-4
-4
-6
-6
00
01
02
Note. Annual percentage change.
03
04
05
06
07
08
09
10
11
12
13
14
Sources: Bureau of Economic Analysis, Eurostat, the IMF and the Riksbank
Current monetary policy – the forecast
Swedish exports slow down, despite new
markets
Percentage of Sweden’s total goods exports
45
45
2000
40
40
2005
35
35
2011
30
30
25
25
20
20
15
15
10
10
5
5
0
0
Euro area
USA
Note. Per cent. Figures for 2011 refer to average up to November.
Percentages do not total 100 per cent as not all countries are reported.
UK
Denmark+Norway
BRIC
Source: Statistics Sweden
Current monetary policy – the forecast
Poorer future prospects dampen willingness
to consume
The confidence indicator and household consumption
60
6
Household consumption (right scale)
Confidence indicator
50
5
40
4
30
3
20
2
10
1
0
0
-10
-1
-20
-2
-30
-3
00
01
02
03
04
05
06
Note. Net figures (confidence indicator) and annual percentage
change respectively (household consumption)
07
08
09
10
11
12
13
14
Sources: National Institute of Economic Research, Statistics
Sweden and the Riksbank
Current monetary policy – the forecast
Weak growth this year – recovery takes time
GDP
6
6
4
4
2
2
0
0
-2
-2
-4
-4
-6
-6
00
01
02
03
04
05
Note. Annual percentage change, calendar-adjusted data
06
07
08
09
10
11
12
13
14
Sources: Statistics Sweden and the Riksbank
Current monetary policy – the forecast
Labour market will deteriorate before
improving
Unemployment
10
10
8
8
6
6
4
4
2
2
0
0
07
08
09
10
Note. Per cent of labour force, seasonally-adjusted data
11
12
13
14
15
Sources: Statistics Sweden and the Riksbank
Current monetary policy – the forecast
Balanced wage increases
Wages according to short-term wage statistics
5,0
5,0
4,5
4,5
4,0
4,0
3,5
3,5
3,0
3,0
2,5
2,5
2,0
2,0
1,5
1,5
1,0
1,0
0,5
0,5
0,0
0,0
02
03
04
05
06
07
08
09
Note. Annual percentage change. For 2011 the outcomes refer to estimated
values on the basis of preliminary outcomes and historical revisions.
10
11
12
13
14
15
Sources: The National Mediation Office and the Riksbank
Current monetary policy – the forecast
Stronger krona
Currency-weighted exchange rate
160
160
150
150
140
140
130
130
120
120
110
110
00
02
Note. TCW index, 18 November 1992 = 100
04
06
08
10
12
14
Source: The Riksbank
Current monetary policy – the forecast
Continuing low inflationary pressure
Inflation measured according to the CPI and the CPIF
5
5
CPIF
CPI
4
4
3
3
2
2
1
1
0
0
-1
-1
-2
-2
07
08
Note. Annual percentage change
09
10
11
12
13
14
15
Sources: Statistics Sweden and the Riksbank
Current monetary policy – the repo rate
Low repo rate to attain inflation target
Repo rate
5
5
4
4
3
3
2
2
1
1
0
0
07
08
Note. Per cent, quarterly averages
09
10
11
12
13
14
15
Source: The Riksbank
Current monetary policy – alternative outcome
”It is very difficult to make predictions, especially about the
future.”
Niels Bohr
Current monetary policy – alternative outcome
Consequences of alternative outcomes,
examples
Repo rate
5
5
Main scenario
4
4
Stronger krona and weaker
outcome abroad
Weaker krona and stronger
outcome abroad
3
3
2
2
1
1
0
0
-1
-1
-2
-2
07
Per cent, quarterly averages
08
09
10
11
12
13
14
15
Source: The Riksbank
Current monetary policy – summary
A forecast, not a promise
Repo rate
7
7
90%
75%
50%
Outcome
Forecast
6
5
6
5
4
4
3
3
2
2
1
1
0
0
-1
-1
-2
-2
07
08
Note. Per cent, quarterly averages
09
10
11
12
13
14
15
Source: The Riksbank
Current monetary policy – repo rate and other interest rates
Many interest rates important in the
economy
Repo rate, mortgage rates to households and bank lending rates to companies
8
8
Repo rate
Variable mortgage rate
7
7
Long fixed mortgage rate
Average bank lending rate to companies
6
6
5
5
4
4
3
3
2
2
1
1
0
0
06
07
08
09
10
11
Note. Per cent. Rates to households and companies refer to new agreements. Variable mortgage rate
refers to fixed terms of up to 3 months. Long fixed mortgage rate refers to fixed periods of between 1 and 5 years.
12
Sources: Statistics Sweden
and the Riksbank
Current monetary policy – repo rate and other interest rates
Changes in the repo rate affect interest
rates in general
Repo rate and average of mortgage rates to households and bank lending rates to
companies
8
8
Repo rate
7
7
Average of mortgage rate to households and bank lending rate to companies
6
6
5
5
4
4
3
3
2
2
1
1
0
0
06
07
08
09
10
11
Note. Per cent. In the blue line, households’ average rate is weighted with the percentage of loans to households, and
companies’ average interest rate is weighted with the percentage of loans to companies. Rates refer to new agreements.
12
Sources: Statistics Sweden
and the Riksbank