A lively discussion is also underway at present on whether central banks should use policy rates to a greater extent to correct imbalances on individual markets. For example, the Riksbank has been encouraged in the media to prevent a bubble developing on the housing market. We naturally take house prices into account in our macroeconomic assessments, and the Riksbank’s interest rate policy has in turn, through its effect on the households’ interest expenses, a considerable impact on the development of prices on the housing market. But the repo rate is not a suitable instrument for the fine tuning of individual markets. It affects, positively or negatively, demand in the economy in a very broad sense. At present, we are conducting the policy that we believe is necessary to meet the inflation target and support the recovery of the Swedish economy. When it comes to preventing systemic risks such as a prolonged unbalanced development of the housing market, the repo rate is too blunt an instrument to do the job on its own. The repo rate should only be considered if the systemic risk is such that it affects our possibility to meet the inflation target and support the stabilisation of the real economy and the financial markets. There are instead other and probably more important factors than the repo rate when it comes to avoiding an unbalanced development of the housing market. This perhaps relates above all to effective regulation and supervision.
Governance to prevent systemic risks – the road ahead I would now like to say a few words about the road ahead for the authorities’ efforts to prevent systemic risks. Today, the Riksbank has an overall responsibility for the financial system. Finansinspektionen is responsible for the stability of individual institutions, but also has a responsibility for the system as a whole. Together, our task is to try to steer the financial system away from instability and towards stability. The main responsibility for this of course lies with the banks themselves. The institutional frameworks give Finansinspektionen the effective tools that directly affect behaviour – the possibility to change the capital requirements, impose sanctions, prohibit or stipulate measures and, ultimately, to withdraw permits and licenses. The role of the Riksbank, on the other hand, is to exert influence by conducting a dialogue with the participants and issuing warnings about the risks that arise. The “Financial Stability Report”, which we publish twice a year, is a central tool in this work. The idea is that our warnings should influence the banks in the following way: if the Riksbank points out that a risk has arisen at a bank, the bank itself should take action to retain the confidence of the market in its operations. If the bank itself does not take action, the bank’s counterparties and customers should at least react and take account of the risk in their pricing.