Riksbank’s Skingsley Sees ‘Urgency’ in Managing Debt Levels

Riksbank Deputy Governor Cecilia Skingsley said putting in place a framework to manage rising debt levels and financial imbalance in the largest Nordic economy is a matter of urgency.

“Monetary policy could, of course, be somewhat more expansionary in the short term but we must remember that monetary policy isn’t perfectly precise and we must have realistic expectations of what it can achieve in relation to the risks that exist,” Skingsley, who was appointed to the Riksbank’s six-member board in May, said in a speech today. “We’re already at full stretch as far as household indebtedness is concerned.”

Sweden’s central bank this month kept its main lending rate unchanged at 1 percent for a fourth time this year and said it won’t start tightening until late 2014 to support a looming recovery of the Swedish economy.

A majority of the board has kept rates unchanged in part amid concern over financial stability. The bank estimates private debt will grow to a record 177 percent of disposable incomes in 2015 as apartment prices have more than doubled since 2000. Governor Stefan Ingves said this month the Riksbank should continue to monitor debt when deciding policy even after the financial watchdog was given more tools to fight debt.

“A continued low repo rate offers the possibility of good economic development in the short term and sustainable development in the long term,” Skingsley said.

There’s currently a debate in Sweden whether to force homeowners to amortize their loans, something Skingsley said today wasn’t necessary at the moment.

“I’m not today prepared to say that amortization” should be a requirement, she said. “But to bring about an amortization culture that produces an increased amortization willingness would be welcome.”

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