Karolina Ekholm: Monetary policy, business cycle stabilisation and macroprudential policy Speech by Ms Karolina Ekholm, Deputy Governor of the Sveriges Riksbank, to a meeting at the Confederation of Swedish Enterprise, Stockholm, 13 March 2013. *  *  *  The views expressed in this speech are my own and are not necessarily shared by the other members of the Executive Board of the Riksbank. I would like to thank Kerstin Hallsten, Kerstin af Jochnick, Cecilia RoosIsaksson, Lars E. O. Svensson, Anders Vredin and Barbro Wickman-Parak for their comments and Magnus Wiberg for help with drafting the speech. As I am sure most of you know, I have in recent years advocated a more expansionary monetary policy than the policy that has actually been conducted. That I have done so recently, when the growth of the Swedish economy has been relatively weak, is perhaps not so surprising. On the other hand, it may be more difficult to understand the reasons for my stance in 2010, when the Swedish economy had growth rates of over 5 per cent. However, as I intend to explain today, I believe that demand has been too low in Sweden ever since the global financial crisis seriously affected the Swedish economy in the autumn of 2008. The low level of demand is ultimately the result of weak economic development around the world, which is subduing the demand for Swedish exports and making households and companies more pessimistic.
Most analyses indicate that the policy rate has very little impact on housing prices and thus also on household indebtedness.17 Using the repo rate would be justified if what we were seeing was a credit boom throughout the Swedish economy. But this is not what we are seeing. Household indebtedness is increasing at approximately the same rate as disposable incomes. The rate of growth in bank lending to companies typically varies with the business cycle, and at present this rate is low (see Figure 11). All in all, credit growth is relatively low in the Swedish economy. Figure 11. Lending to households and companies from monetary financial institutions Annual percentage change 20  20  15  15  10  10  5  5  0  0  -5  -5  Total lending from monetary financial institutions Companies Households  -10 03  04  05  -10 06  07  08  09  10  11  12  13  Source: The Riksbank. Another problem with using monetary policy to influence household indebtedness is that this also has an impact on the exchange rate. All else being equal, higher interest rates lead to a stronger currency and, again all else being equal, a stronger currency leads to lower inflation and lower resource utilisation. There are thus clear costs associated with using monetary policy in this way. The alternative – and a better one – is to separate monetary policy from the policy that aims to promote financial stability.