Unclear international developments – unclear conditions for monetary policy There is greater geopolitical uncertainty in our immediate area than there has been for a long time. The ongoing conflict in Ukraine could escalate, trigger more far-reaching sanctions, put further downward pressure on demand in parts of Europe and push energy prices up or down. We are monitoring developments closely, taking note of other analysts’ assessments and working with different scenarios, but it is of course difficult to assess the probability of an escalating conflict and to quantify what potential effects it might have. Another uncertainty factor concerns the situation in the euro-area banking sector. The European Central Bank’s review of banks’ assets (Asset Quality Review) and accompanying stress tests, which will be published soon, can strengthen confidence in the banks and thereby hopefully give new vitality to the banking sector, which has so far hampered a muchneeded recovery through restrained credit granting and high interest rates on bank loans. But the problems in the Portuguese, Bulgarian and Austrian banks that have surfaced over the summer imply that some problems remain and there is a risk that the review will either point to extensive problems or be perceived as insufficient. Another extremely important condition for monetary policy in Sweden is the shape that monetary policy abroad will take and what effects it will have on growth, inflation and exchange rates.
With interest rates along the yield curve close to zero, there is also simply less room for monetary manoeuvre than in the past. Before the Covid crisis, I expressed concerns about the growing “dependency culture” around monetary policy.21 Recent events have done nothing to allay those concerns. Price stability is an anchor on which all societies and economies depend for their stability and success. At this time of momentous uncertainty about the health of our societies and economies, it is more important than ever that central banks are not over-burdened and that the anchor of price stability is not disturbed. Thank you. 21  Haldane (2019). 23  All speeches are available online at www.bankofengland.co.uk/speeches  23  References Aaronson, D, Brave, S, Butters, R, Sacks, D and Seo, B (2020), ‘Using the Eye of the Storm to Predict the Wave of Covid-19 UI Claims’, Federal Reserve Bank of Chicago Working Paper, No. 2020-10. Barro, R, Ursúa, J and Weng, J (2020), ‘The Coronavirus and the Great Influenza Pandemic: Lessons from the “Spanish Flu” for the Coronavirus’s Potential Effects on Mortality and Economic Activity’, NBER Working Paper, No. 26866. Carvalho, V, Garcia, J, Hansen, S, Ortiz, Á, Rodrigo, T, Rodriguez Mora, J and Ruiz, J (2020), ‘Tracking the Covid19 Crisis with High-Resolution Transaction Data’, Cambridge-INET Institute Working Paper, No: 2020/16. Chetty, R, Friedman, J, Hendren, N, Stepner, M and Opportunity Insights Team (2020), ‘How Did Covid-19 and Stabilization Policies Affect Spending and Employment?