Sweden Riksbank Governor Calls Intervention Scope Limitless

  • Says sees unlimited scope for monetary policy purposes
  • Says setting exhange rate floor is a hypothetical question

Sweden’s central bank governor said there are no restrictions on the scope for interventions as a debate swirls over the bank’s legal mandate to directly intervene in the krona.

There are no limits “in the law,” Riksbank Governor Stefan Ingves said in an interview after a presentation Tuesday to the Swedish parliament’s Finance Committee. “As long as currency interventions are carried out for a monetary policy purpose, we can do it.”

The mandate has been called into question after the bank ratcheted up threats to directly weaken the currency in its battle to revive inflation. The debate ignited last month after a review of Swedish monetary policy, co-written by former Bank of England Governor Mervyn King, said there was a need to make clear in the Riksbank law that any decisions on the exchange rate regime “is a matter for government.”

The government quickly countered that it was prepared to look into clarifying details in the framework of the largest Nordic economy.

“If the Riksbank were to carry out interventions that steer towards a certain krona exchange rate there are ambiguities in the law,” Finance Minister Magdalena Andersson said last week. “That’s something we’ll need to look at in an evaluation.”

Policy makers are reaching deeper into their toolbox to revive inflation, after cutting rates far below zero and unleashing an unprecedented bond purchasing program. Swedish inflation has hovered near zero for more than three years.

Ingves said that the current Riksbank law doesn’t “answer” whether policy makers can set a floor on the currency, calling it a hypothetical question.

“We keep to the current law, which steers what we can do with a monetary policy purpose,” he said.

The scope of the intervention mandate will be included in a broad review of the Riksbank Act that the Finance Committee is planning to appoint in the summer, Fredrik Olovsson, the chairman the committee, said on Tuesday.

Ingves on Tuesday informed the committee on the bank’s preparations for currency interventions. 

According to Olovsson, the Riksbank’s conclusion after they intervened in 2001 was that it’s a tool to used carefully. “The Riksbank has said that this is a tool you need to think carefully before you use, considering experiences last time,” he said.

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