Hearing on monetary policy Martin Flodn Deputy Governor Riksdag - PowerPoint PPT Presentation

Hearing on monetary policy Martin Flodén Deputy Governor Riksdag Committee on Finance 8 November 2018

Is it time to raise the interest rate? • Inflation too low for a long time → Weakened confidence in the inflation target → Price-setting and wage formation affected → Not obvious that inflation will return to target • Monetary policy has needed to focus on restoring confidence → Interest rate close to lower bound

Monetary policy challenges have diminished Inflation close to target Confidence in the inflation target is stronger 3.0 3.0 3.0 3.0 Inflation expectations CPIF 5 years ahead 2.5 2.5 2 years ahead 2.5 2.5 2.0 2.0 1.5 1.5 2.0 2.0 1.0 1.0 0.5 0.5 1.5 1.5 0.0 0.0 -0.5 -0.5 1.0 1.0 10 12 14 16 18 20 10 12 14 16 18 20 Annual percentage change. Inflation expectations refer to average for money market participants. Vertical broken line indicates when a negative repo rate Sources: Statistics Sweden and TNS Sifo Prospera was introduced and government bond purchases were initiated.

Is it time to raise the interest rate? • Inflation too low for a long time → Weakened confidence in the inflation target → Price-setting and wage formation affected → Not obvious that inflation will return to target • Monetary policy has needed to focus on restoring confidence → Interest rate close to lower bound • Monetary policy challenges have diminished • Now possible to take a step away from the most expansionary monetary policy