Sweden’s Riksbank Faces New Mandate After Missing Price Goal

Sweden’s Left Party, which polls show may help form a government with the opposition Social Democrats after September elections, said political consensus is growing that the central bank needs a new mandate.

The chances for a dual monetary policy goal “are better than they’ve been in modern history,” Jonas Sjoestedt, the party’s leader, said yesterday in an interview in Stockholm. “It’s really the first time that the other parties have started to become more open to reviewing the framework and I think that once the dust has settled after the elections this autumn it’s time for us to propose a review.”

The Riksbank has confronted a barrage of criticism after Swedish consumer prices stayed below its price target for more than two years. The bank has been reluctant to cut rates amid concern that doing so would fuel record household debt burdens even as unemployment hovers well above 8 percent.

Nobel Laureate Paul Krugman lambasted the central bank earlier this year for failing to stave off the threat of deflation while Finance Minister Anders Borg said this month it’s “worth having a discussion” to explore whether an independent agency should monitor the Riksbank. The bank is currently overseen by the parliament’s finance committee.

Krugman in April described Sweden’s monetary policy as an example of “sadomonetarism.” Sweden endured four months of consumer price declines through April, prompting members of the Riksbank’s own board to criticize its policies.

Consumer prices fell an an annual 0.2 percent in May, declining for a fifth month, Statistics Sweden said today.

Better Stimulus

Sjoestedt, whose party has about 8 percent backing in the polls and may form a coalition with the Social Democrats and the Green Party, said a dual mandate will generate “more investments, better stimulus” for the largest Nordic economy. He advocated a five-year target of pushing down unemployment to 5 percent and an employment rate of “at least 80 percent” for those between 16 and 64 years of age.

The Social Democrats and Green Party last month also indicated they’re open to introducing a dual mandate.

Sjoestedt’s party is ready to discuss having an independent council evaluate the Riksbank and is “not entirely foreign to the idea” of letting parliament select bank board members by a majority.

Talks should be held by all eight parties in parliament to discuss how the framework for monetary and fiscal policy may be changed, he said.

Surplus Target

Sjoestedt said he will also argue in favor of changes to fiscal policy to remove breaks on the economy, and will seek to scrap Sweden’s 1 percent budget surplus target. Doing so will “free up space for long-term investments that increase productivity and competitiveness,” he said.

He wants to reduce public debt and his party favors a balanced budget. “Strong public finances are a big advantage for Sweden, especially since we would like a lot of welfare,” he said.

No other party has argued in favor of abandoning Sweden’s surplus target.

“Until the elections, I think they will compete over who will be the toughest sheriff in town,” Sjoestedt said. “It will become easier” to talk after the vote, he said.