We should of course think about how to create a liquid market for bank certificates in kronor. One problem is that the benefits of such a market fall to the banks collectively while the costs in the form of higher borrowing costs fall to each bank individually. In this perspective it may be necessary to investigate whether the costs that each individual bank pays for its shortterm funding in foreign currencies reflects the true costs to the Swedish financial system and Swedish society. BIS central bankers’ speeches  7  Figure 3 Outstanding certificates issued by banks in Swedish kronor SEK billion  Note. Refers to certificates issued by banks, mortgage institutions and other credit institutions. Source: Statistics Sweden  Swedish conditions require a complement to the reform agenda The Swedish banking system is thus marked by a number of characteristics that make it somewhat special in an international perspective – characteristics that either increase the risk of problems or the economic costs to society if problems arise in the banking sector. There are therefore good reasons for establishing a safe margin – a respectable distance – to the minimum regulations in the Basel III Accord. As you know, we have already taken several steps to strengthen the Swedish banking system, over and above the commitments that Basel III entails.
Can you explain the ECB’s assessment of how inflation is developing? Looking at incoming data, I would say that data are more or less in line with our expectations. But this has to be seen in a context where we had repeatedly overestimated future inflation rates. In the last years, we have repeatedly lengthened the horizon over which we would get back close to 2 percent. Mechanically updated projections suggest that the risk is present that we may again have to extend this horizon. And even if it’s slightly, it’s a repetition of a past pattern. And then you go into the question of credibility of monetary policy. BIS central bankers’ speeches  1  If you observe for example, that the price people are ready to pay for protection against inflation is zero, or very low, that’s not necessarily a good signal, as it suggests that they are not convinced there’ll be inflation. And that could be related to scepticism about the ability of the central bank to influence inflation even five years ahead – which would be quite serious. You cannot just reject that. Markets might be signalling that there could be some second round effects related to the fall in oil prices. Inflation expectations would then be hit at some point. Finally they could also reflect a very pessimistic view on the future, and that’s the more secular stagnation scenario where the falls of oil prices would be more the reflection of deep structural problems in the global economy.