The estimated interest rate they use in the calculation is on average around 7 per cent, which is some way above a long-term normal level, which can be assumed to be between 4.5 and 6 per cent. 7 Calculations done by the Swedish financial supervisory authority, Finansinspektionen (FI), on a sample of new mortgage holders show that only just over 5 per cent of households have a deficit in their discretionary income calculations if the mortgage rate rises to 7 per cent. 8 There is hence nothing to indicate that the household sector as a whole would encounter significant problems in paying their interest expenses even if interest rates were to rise substantially in relation to their current levels. And, as I said earlier, our forecast indicates extremely limited rate increases in the years to come. But when the rate rises, many households might have to adapt their consumption to cope with the increased interest payments. From a macroeconomic and monetary policy perspective, it is therefore important to understand how household consumption is affected when interest rates change. 7 I have assumed a mark-up on the mortgage rate of 2 percentage points over the interval for the long-term repo rate of 2.5-4 per cent. 8 See Finansinspektionen (2018), “The Swedish mortgage market”.
interest rates adjusted for inflation) have been exceptionally low for a long time, and in all likelihood will continue to be so for some considerable time. Monetary policy cannot influence global real interest rates but must relate to the developments we see. The lower global interest rates are, the lower the policy rate must be to have the same expansionary effect on the economy. Another circumstance that has changed the monetary policy landscape – and which I will address later – is that households are more affected by interest rate adjustments than previously. What happens to the bond holdings? As you may know, in addition to lowering the interest rate to negative levels, we have also purchased significant volumes of Swedish government bonds to a nominal value of approximately SEK 350 billion – to make monetary policy even more expansionary. There is much talk about interest rates rising in the future, but many may not be so aware of how adjustments to the repo rate going forward relate to our bond  2  See “Monetary policy in a new environment”, speech by Stefan Ingves on 5 March 2018. 5 [13]  holdings. The figure shown in Figure 5 has been taken from the article we published in December 2017. 3 The shaded parts of the figure show roughly what has happened since then. Figure 5. The Riksbank’s overall normalisation plan for monetary policy  New purchases of bonds were discontinued in December 2017, which also signified the end of phase 1 in Figure 5.