Kristina Persson: Monetary policy and competition Speech by Ms Kristina Persson, Deputy Governor of Sveriges Riksbank, at Roslagens Sparbank’s annual general meeting, Norrtälge, 17 April 2002. *  *  * 1  Thank you for the invitation to come here to Roslagen Sparbank’s annual general meeting. Today, I do not intend to discuss current monetary policy, but rather to concentrate on an area that is of great significance for inflation and monetary policy, namely the competitive conditions in the Swedish economy. The objectives for monetary policy are clearly stated in the Sveriges Riksbank Act – to maintain price stability and to promote a safe and efficient payment system. The Riksbank has further defined the first of these objectives in an inflation target, i.e. that the annual rate of change in consumer prices shall be 2 per cent, with a tolerated deviation interval of ± 1 percentage point. Interest rate decisions influence price trends partly via the effects on resource utilisation, which means that the impact of the decisions has a certain time lag. It is partly for this reason that monetary policy is based on the total assessment of how the rate of price increase will develop one to two years ahead. There are a number of factors in the economy that affect inflation, but over which the Riksbank has no control. These include the exchange rate, fiscal policy, international economic developments, potential growth, the functioning of the labour market and competition conditions on the product markets.
Nature’s education website declares: “Ignoring Population Structure Can Lead to Erroneous Predictions of Future Population Size.”[11] The lesson is no different in markets – underlying market structures matter. CCPs – who are in the risk management business – can help with this by understanding and managing the markets in which they operate. This includes client positions and the role of physical delivery. The recent events in the nickel market are a good example. The historic price moves I just spoke about can be the result of things completely outside of the financial system – weather, plagues, and invasions. But they can also be exacerbated or even driven by market structure. In the case of nickel, much of the price move was related to the build-up of a very large position in the form of a tangled and opaque web of derivative exposures involving a single client. We have seen these before: Archegos, Long Term Capital Management. This time, while the bulk of the contracts were bilateral, many were centrally cleared. There will be important lessons learned from the events in nickel – both with respect to the specific incident and more generally,[12] and I am sure I will have more to report following the conclusions of the independent review we have commissioned. Page 6  When it comes to this early lesson, CCPs could form part of the solution.