Stefan Ingves: Introduction on monetary policy Speech by Mr Stefan Ingves, Governor of the Sveriges Riksbank, to the Riksdag Commitee on Finance, Stockholm, 15 November 2007. *  *  *  What is the objective of the Riksbank’s monetary policy? To maintain price stability – an inflation rate around two per cent a year? Yes, this is of course correct. But behind this wording there lies a deeper meaning – the actual core of the task delegated by the Riksdag (the Swedish parliament) and ultimately the Swedish people to the Riksbank. Because what it is essentially all about is to create the best possible conditions for good and sustainable economic development. And monetary policy contributes to this by keeping inflation low and stable. The inflation target is not merely a target, but also a means. The fact that I as Governor of the Riksbank have the opportunity to discuss monetary policy with you who represent the Riksdag is also important for the prospects of reaching this goal in the best possible way. The Riksbank must have support and legitimacy from the people to be able to succeed in its policy. It must therefore be easy to examine how monetary policy is conducted and how well we live up to our principles. The fact that the Riksbank Governor regularly takes part in these hearings is an important part of this process. Our task also means that we must constantly strive to become better at what we do and develop our working methods.
The baseline scenario reflects the slowdown in output that has been occurring during the year. It also assumes that investment will moderate further as the investment cycle is completed, consistently with adjustments seen in business surveys and investment plans. Consumption is expected to slow gradually because of the still strong labor market and the relative stability of household saving during the expansionary phase of the cycle. Consumer expectations are less optimistic these past few months and are approaching neutrality, which will help moderate this component of expenditure. So will the slower pace of marginal job creation, particularly salaried work, and the slowdown of real wages. Coupled with this is the depreciation of the real exchange rate which will affect durable consumption. Also, moderating investment will help to take pressure off the labor market. Finally, there is the foreseen reduction in the impulse from abroad (table 2). Inflation is expected to continue to grow steadily to reach 3% during the first half of 2014 and and be stable until the end of the projection horizon, this time the third quarter of 2015. The CPIEFE will take somewhat longer to hit 3%. The underlying assumption is that nominal wages will rise in line with productivity and the inflation target. There is also the methodological assumption that the RER will remain near its recent values. Finally, the baseline scenario uses as a working assumption that the MPR will follow a path similar to the one implicit in expectations surveys available at the closing of this Report (figure 5).