The risk otherwise is that we will create new problems that may lead to low growth further on and new difficulties for monetary policy to reach the inflation target. I am concerned about Sweden’s position as one of a handful of countries in Europe that has not succeeded in getting a functioning macroprudential policy into place. With such a large financial system and the obvious major vulnerabilities present in the Swedish economy, our focus should be on urgently adopting measures. Valuable evaluation of monetary policy We thus have an unusual time behind us that has required unusual measures over the past year. Under such circumstances, it is natural to wonder, for example, how well the inflation target is functioning and which areas monetary policy should be responsible for. It therefore seems appropriate that the Riksdag Committee on Finance has just published its latest assessment of monetary policy.6 First and foremost, I would like to say that it has been a privilege to have my work reviewed and assessed by people with such impressive academic and practical credentials in the area of monetary policy as those possessed by Messrs. Goodfriend and King. Assessments are a key ingredient in every kind of work to improve operations and this assessment contains many reasonable opinions and suggestions for discussion and further work. We will do this over the spring, before submitting our consultation response in April.
A cautious combination of a negative repo rate and bond purchases So how have we chosen to act, and what have the results been, so far? Up to this point, we have kept to changes to the repo rate and repo rate path, and purchases of government bonds. As it has not been completely certain how these would function in practice, there has been reason to proceed cautiously. We have combined several measures over the past year to make the combined effect sufficiently great. Over a number of stages, we have cut the repo rate and/or the repo rate path, at the same time as we have announced and initiated bond purchases in amounts that have been increased in several stages (see Figure 4 and Figure 5). In addition, in our communication, we have emphasised our preparedness, if necessary, to also rapidly increase monetary policy stimulus between the ordinary monetary policy meetings held every second month. In March 2015, we did exactly this – we took a decision on new monetary policy stimulus between two ordinary meetings. The repo rate cuts have largely worked As regards the repo rate cuts, so far we have been able to observe that lending rates followed to a normal extent, while deposit rates have stopped at zero for everybody except some larger companies.