Stefan Ingves, the governor of Sweden’s central bank, pledged to prioritize fighting disinflation in the largest Nordic economy over stemming record household debt.
Ingves, who as chairman of the Basel Committee on Banking Supervision has earlier suggested the central bank can’t afford to keep rates too low for too long given Sweden’s growing private debt load, yesterday called for more regulatory tightening to give him room to focus on inflation. The krona slipped 0.2 percent against the euro to 8.8463 as of 8:36 a.m. local time. The currency lost 0.8 percent yesterday.
“Given that we have an inflation target and given that inflation in the last year came in on the low side, that’s what we have to do,” Ingves said yesterday in an interview in Stockholm. “Given that we are at a very low policy rate, others have to do more in terms of putting in stricter rules and regulations” to deal with household indebtedness, he said.
Ingves’s efforts last year to tackle borrowing through monetary policy provoked criticism from economists at some of Sweden’s biggest banks and even from members of his own six-member board. Lars E.O. Svensson, who used to work with former Federal Reserve Chairman Ben S. Bernanke, stepped down from the board in May after faulting Ingves’s focus on the housing market, which he blamed for high unemployment and low inflation.
Ingves reversed course in December, when a period of deflation prompted him to cut the repo rate for the first time in a year. He held the rate at 0.75 percent yesterday and reiterated the Riksbank’s plan to wait with tightening until the beginning of next year.
Still, the Riksbank raised its estimate for household debt, seeing an increase to more than 180 percent of disposable incomes in the fourth quarter 2016, from 172 percent in the third quarter last year.
“Household debt remains an issue, that’s for sure, and that needs to be thoroughly discussed and dealt with,” Ingves said. “We will do our part, but also others will have to do their part to deal with that particular issue.”
Danske Bank A/S (DANSKE) said Ingves is still too optimistic on Sweden’s inflation prospects. The Riksbank yesterday raised its forecast for consumer prices, stripped of mortgage costs, and sees inflation by that gauge reaching its 2 percent target in August 2016. Danske questioned the prediction, given Sweden’s high jobless rate and record-low wage agreements.
“We see no reason to come up with another forecast” for unemployment “given the demand conditions in the economies, it’s most likely that unemployment will continue moving down over the coming years,” Ingves said.
Borg said this week he’s planning stricter bank capital rules to ensure household debt doesn’t continue growing. Doing so will help the bank avoid resorting to policies that would fuel appreciation in the krona.
“We think that the krona is pretty much where it should be,” Ingves said. “Our view is that the krona is going to be pretty stable going forward.”
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