Today, in my personal judgement, it might be considered that the first criteria (with a headline inflation significantly above 2% since summer last year and expected to remain there for months ahead), and the third one (with underlying inflation around or above 2% by most definitions) are fulfilled. At this stage, according to our December forecasts, the remaining one (about inflation remaining at or above 2% for the rest of the projection horizon) is not met. This could possibly change in the next quarters. However, we should be mindful of the uncertainty surrounding our 3year inflation projections in the extraordinary context we are going through, especially when price pressures are originating from sector-specific supply constraints with moderate signs of contagion so far to wages. And there is one additional element, calendar based, introduced by the sequencing: any rate hike should only happen after date X, the end of the net asset purchases. We should not pre-empt this calendar: it is about the credibility of the sequencing, and also about some caution on the most fragile of our criteria – the medium-term forecastbased one. This brings me to a key reminder: the forward guidance never calls for an automatic decision, and always preserves our possible assessment. In our own wording, it is an “expectation”, and the Governing Council has to “see” and “judge”: even if and when the three criteria will be fulfilled, we could take into consideration exogenous or exceptional contingencies, including geopolitical ones.
It is namely the case that the preliminary works to the Sveriges Riksbank Act emphasise that the monetary policy instruments shall only be used to maintain price stability, and thus not to promote a safe and efficient payment system.3 We sometimes say that monetary policy shall take financial risks into account, as it can be difficult to stabilise inflation around the target if households are forced to rapidly reduce their debts.4 Such difficulties could arise, of course, but for me it is not consideration of the inflation target that mainly justifies letting monetary policy take financial risks into account. Instead I perceive taking financial risks into account to follow on from the task of “supporting the objectives of general economic policy with the aim of achieving sustainable growth”. A monetary policy that leads to an unhealthy build-up of credit or other financial imbalances is scarcely compatible with sustainable growth. But this task, like the task of stabilising economic activity, is subordinate to the inflation target. Monetary policy’s consideration of financial risks must therefore be weighed against the inflation target and economic developments. 1  For a tool to be sufficient to meet the inflation target and attain a balanced development in economic activity, it is necessary for the economy to mostly suffer demand shocks, not supply shocks. This observation is sometimes called the divine coincidence, an expression coined by Blanchard and Gali (2007). 2  See the Riksbank (2013a) p. 3. 3  See Bill 1997/98:40, p. 54. 4  See, for example, the Riksbank (2013b).