Swedish policy makers need to take into account risks stemming from household debt when setting interest rates as the nation works to set up a better oversight framework to combat financial imbalances, Riksbank First Deputy Governor Kerstin af Jochnick said.
“It’s desirable that the Riksbank should be able to use the policy rate to an even greater extent to stabilize inflation and the real economy in the future, and that more appropriate tools than the repo rate can be used to reduce the risks of financial imbalances,” she said in the text of a speech in Stockholm today. “A functioning framework for macroprudential policy can improve the conditions for ensuring that the Riksbank attains its two main objectives: price stability and financial stability.”
The Swedish central bank has taken record-high household debt into consideration when setting rates in the past year to prevent low borrowing costs from triggering a housing bubble. That has hurt economic growth by strengthening the Swedish currency, Finance Minister Anders Borg said last week.
Sweden, which exports about half of its output, is suffering from slowing demand from abroad as countries in Europe are cutting spending to reduce debt. That prompted the central bank to cut its main lending for a fourth time since December 2011 to 1 percent last month.
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