Measures which set an upper limit for individual household indebtedness can therefore be effective in terms of reducing the risk of weak macroeconomic growth, even though the effects of the total debt-to-income ratio would be limited. The Riksbank’s previous analysis has also shown that a debt-to-income limit (that is to say a limit for how large debt can be in relation to disposable income) could be an effective complement to the current loan-to-value limit. 16 This is due to the fact that incomes grow in a more stable way than housing prices. Whenever housing prices increase sharply, there is a risk that debts will continue to increase in relation to incomes if the only limitation is a loan-tovalue limit. A debt-to-income limit is also more effective in terms of preventing interest payments taking up too large a share of incomes in the future. So those are the measures we could take. But what would happen to household indebtedness if no further measures were taken? A few different scenarios for household indebtedness Normally, the Riksbank creates forecasts regarding household indebtedness three years ahead. Making an assessment any further ahead than this would involve considerable  16  See the article “Debt-to-income limit as a policy measure” in the Financial Stability Report 2015:1, and Alfelt, G., Lagerwall, B. and Ölcer, D. (2015) “An analysis of the debt ratio ceiling as a policy measure”, Economic Commentary no. 8, 2015. Sveriges Riksbank. BIS central bankers’ speeches  13  uncertainty.
Conclusion It is important for the Riksbank to analyse the housing market and household indebtedness, not least because they can have an impact on our ability to perform our tasks relating to price stability and financial stability. Our expansionary monetary policy aims to maintain confidence in the inflation target. Today I have pointed out that international monetary policy establishes a framework for Swedish monetary policy. Inflation is now moving in the right direction. However, one precondition for the success of our monetary policy strategy from a longerterm perspective is that we take measures elsewhere to reduce risks linked to the housing market and household indebtedness. Developments are definitely moving in the wrong direction! There are several potential risks for the real economy, financial stability and price stability, which are connected to household indebtedness and the housing market. I have attempted to shed some light on several of them today. The Swedish housing market could be likened to a “blind spot” in terms of economic policy. In its latest statement on Sweden’s economy, the IMF described the situation on the Swedish housing market as self-inflicted. 23 It is essentially each individual bank’s responsibility to ensure sound long-term credit lending. This is a central principle in a market-based system, and something which we should not forget in the debate about the housing market and household indebtedness. However, the authorities are responsible for taking action if developments threaten macroeconomic and financial stability. Sweden is lagging behind in this regard.