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Riksbank Needs Inflation Overshoot as Jobs Lost, Svensson Says

Swedish central bank Deputy Governor Lars E. O. Svensson said policy needs to be set to allow inflation to overshoot the target as high unemployment risks becoming permanent in the largest Nordic economy.

“When unemployment has been high over a long period of time and is becoming entrenched, we need a particularly expansionary monetary policy, a large demand for labor and an inflation rate that is temporarily allowed to overshoot the target,” Svensson said in a speech published today on the Riksbank’s website.

Svensson last month argued for a deeper cut than the 0.25 percentage point move to 1 percent that the Riksbank delivered. The former Princeton University Professor entered reservations against all rate decisions last year, saying a more expansionary policy will move inflation closer to the Riksbank’s 2 percent target.

Sweden’s seasonally adjusted unemployment rose to 8.1 percent in November, from 7.7 percent the previous month, the Stockholm-based statistics office said last month. Sweden’s annual inflation rate was a minus 0.1 percent in December.

To contact the reporter on this story: Johan Carlstrom in Stockholm at jcarlstrom@bloomberg.net.

To contact the editor responsible for this story: Jonas Bergman at jbergman@bloomberg.net

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