13 If it is considered important to influence market expectations in a certain way, I believe that it is normally easier to achieve this using well-considered communication, for example in the form of more or less forceful statements from the Executive Board about future interest rate policy, rather than in the form of bond purchases. … but increased likelihood of unconventional monetary policy in times of economic slowdown When the acute phases of the financial crisis began in the autumn of 2008, the Riksbank owned no domestic bonds. As a result, the Riksbank found it difficult to quickly intervene on the market with appropriate support measures. A lesson learnt from this episode was that the Riksbank needed to have preparedness in order to be able to act on the bond market in special situations. Such preparedness presupposes that the Riksbank maintains at least a small portfolio of government bonds in order to have the necessary systems, agreements and knowledge in place. The Riksbank therefore built up a government bond portfolio in 2012– 2013. 14 This justification for maintaining a bond portfolio is still relevant. A future reduction of the Riksbank’s bond holdings will therefore most likely not result in a complete phasing out of the portfolio. But the bond portfolio built up in 2012–2013 was small in relation to the one built up for monetary policy purposes. Bond purchases in 2012–2013 totalled SEK 10 billion, compared with purchases for monetary policy purposes since 2015 totalling more than SEK 300 billion.
Although that decision will be highly uncertain and subject to intense scrutiny, the strategy guiding the decision – and the primacy of the inflation target within that strategy – should be clear. BIS Review 86/2009  5  4. Conclusion  The inflation target remains a vital pillar of the macroeconomic policy framework and should continue to provide the focus for monetary policy. But there are lessons that need to be learnt from this financial crisis. Good policy frameworks should provide policymakers with the right incentives to take difficult decisions and the right tools to implement those decisions. Inflation targeting goes a long way: the clarity of the objective and the transparency of the regime act as an important discipline on the MPC and short-term interest rates are, for the most part, effective in maintaining a broad balance between nominal demand and supply and so generating low and stable inflation. But they are not well suited to nipping incipient bubbles in the bud and restricting burgeoning imbalances. Policymakers need to make difficult judgements about asset prices and imbalances but they also need effective and efficient tools to enact those judgements. 6  BIS Review 86/2009