Sweden's Ingves Is Open to Changing Inflation Target Gauge

Sweden central bank Governor Stefan Ingves opened up to changing the inflation gauge, as well as reintroducing a target interval, amid growing criticism the bank’s record stimulus is endangering stability.

The governor, in a speech titled, “Time to rethink - inside the head of a central bank governor,” outlined a broad palette of potential changes, including switching the inflation target from headline price growth to measures that factor out interest rates or a harmonized measure.

“Both domestic and overseas forecasters relatively seldom take into account the fact that the Swedish CPI is calculated the way it is when they describe the situation,” he said. “This can lead to misleading international comparisons. In recent years, for example, eye-catching headlines have appeared at regular intervals in the media saying that Sweden is in deflation, despite this being largely due to the fact that housing costs in the CPI have gone down when the Riksbank has cut the repo rate.”

A growing number of analysts are anticipating an end to two years of aggressive rate cuts amid housing bubble concerns and signs that the unprecedented stimulus program isn’t enough to help it meet its inflation target. The central bank hasn’t met its 2 percent inflation target since 2011.

The governor on Wednesday said that “technically”, the bank could reintroduce an interval around the target since that would help during times when it takes time to reach the goal. The Riksbank has started an internal investigation around whether the interval could be reintroduced.

“I am for it, because in retrospect, it was wrong to remove it,” Ingves said, adding that the internal review could be finished “within half a year to a year.”

Ingves reiterated that the Riksbank should have more control over financial stability, which is in Sweden is the hands of the financial regulator. A complete rethink of macroprudential policy is necessary, Ingves said. One idea may be to merge the bank with the Financial Supervisory Authority, he said.

”You can’t carry out monetary policy without financial stability. They are dependent on each other”

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