The trend of increasing debt among households, combined with a large share of mortgages at variable rates, may also have meant that households’ sensitivity to fluctuations in house prices and interest rates has increased over time. Several international studies imply that a high level of debt in itself can aggravate the negative effects of a fall in house prices on consumption.2 Since we published the inquiry into the risks in the Swedish housing market, house prices have levelled off, and household debt has increased at a slower rate. It is important to remember that this development is probably partly explained by the monetary policy conducted; for instance, the repo rate was raised in connection with the strong recovery after the financial crisis, and as I mentioned, we have taken into account the risks linked to household debt in our repo-rate decisions over the past year. Another possible reason for the slower developments is the mortgage cap, to which I will return later. As household debt in Sweden is still high, and higher than in many of the countries that have suffered major problems, I still consider the risks to be substantial (see Figure 5). 1  See, for instance, Sveriges Riksbank (2011), The Riksbank’s inquiry into risks in the Swedish housing market. 2  See, for instance, IMF (2012), World Economic Outlook, April, and also R. Glick and K.J. Lancing (2010), “Global Household Leverage, House Prices, and Consumption”, Federal Reserve Bank of San Francisco Economic Letter 1.
Monetary policy would then be able to focus fully on the inflation target, while more precise tools could be used to counteract the build-up of financial imbalances. Household debt and housing prices have been taken into account in the repo-rate decisions… Monetary policy in Sweden in recent years can be summarised roughly as follows. The debt crisis in Europe has hampered the conditions for Swedish exports. The Swedish economy has developed relatively well, but there was a clear slowdown towards the end of last year (see Figure 1). Domestic demand showed good resilience for a long time, but has now also begun to weaken. Low cost increases for companies and a stronger krona have also meant that inflationary pressures have declined (see Figure 2). Given this, monetary policy has gradually become more expansionary over the past year, and in December we cut the repo rate even further (see Figure 3). Over the past year, we have also lowered the forecast path for the repo rate. This has been necessary to meet the inflation target and support economic activity. But in our monetary policy we have also given some consideration to household debt and housing prices – and for good reason, in my opinion. Let me explain this in more detail. …as there are considerable risks The financial crisis has made the risks linked to the housing market and high household debt crystal clear. The most well-known examples are the United States, Ireland and Spain.