Traders Don’t Want Riksbank Head to Stay, Faulting Stimulus Glut

  • Almost 75% in a survey say Ingves shouldn’t get new term
  • Survey shows 45% rate Riksbank performance as poor since 2008

Traders and analysts at Sweden’s biggest banks have had enough of the central bank’s unprecedented stimulus and its main architect: Governor Stefan Ingves.

A broad majority of respondents in a Bloomberg survey said the bank has done plenty, or even too much, by unleashing record stimulus. An almost similar majority said Ingves shouldn’t receive a new term when his current period expires at the end of 2017. Some even say he should step down prematurely.

Ingves and his colleagues find themselves in a whirlwind of criticism after cutting interest rates deep below zero and embarking on a quantitative easing program that will soak up more than a third of the main government bond market. While the measures have successfully steered Sweden away from getting mired in deflation -- and fostered an economic boom -- they have stirred opposition amid concerns over an overheating housing market and for their eroding effects on bank profits.

“The Riksbank doesn’t see the limitations of monetary policy,” said Robert Bergqvist, chief economist at SEB in Stockholm and a former researcher at the central bank. “You reach a point, and beyond that point policy becomes counterproductive” by creating uncertainty for households and companies, he said.

Bloomberg sent out the survey this month to 147 traders, analysts, strategists and sales people at Sweden’s five biggest banks and received responses from 57. Here are some other key findings:

  • A full 46 percent of respondents rated the bank’s performance since 2008 “very poor” or “poor,” while 39 percent said it was “adequate” and 16 percent “good” or "very good.”  
  • Almost 65 percent opposed expanding the bank’s mandate to include employment, while 33 percent were in favor.
  • Some 91 percent said if needed to address imbalances the bank should be able to deviate from its inflation target for longer than the stipulated two years, while 9 percent were opposed to more leeway.
  • Close to 88 percent said the bank shouldn’t intervene in the krona, with 12 percent in favor of such a move if needed to boost inflation.
  • And 56 percent want to change the inflation gauge to CPIF from CPI, with HICP favored by 25 percent.

Tomas Lundberg, chief press officer at the central bank, declined to comment on the survey.

Divisions have also emerged within the bank, with growing skepticism toward more stimulus from at least three members on the six-person board. The bank, which lost a battle to the Financial Supervisory Authority to be the main overseer of financial stability, has urged the government to take urgent measures to cool the runaway housing market.

For Ingves, the criticism could be confounding. First he was called a “sadomonetarist” by Nobel laureate Paul Krugman for not cutting rates fast enough in the face of deflation, while now he’s being accused of endangering the economy.

The aggressive easing that began two years ago marked a u-turn from earlier when the bank only slowly cut rates amid concern over record house prices, which have helped almost double debt as a share of disposable income since the 1990s. Despite the earlier reluctance on stimulus, the bank has consistently predicted, but always failed to delivered on its two-year 2 percent inflation target.

The Riksbank’s main price gauge, which includes changes to mortgage rates, has added to its challenges by pushing down costs with every rate cut. Lawmakers are preparing a review of the bank’s mandate. Finance Minister Magdalena Andersson has suggested it should be expanded to take more account of employment -- a sentiment echoed earlier this year in a report by former Bank of England Governor Mervyn King.

While the Riksbank should not be given an expanded mandate, it has to become more flexible when it comes to its inflation target, Bergqvist said. 

“The price we will have to pay is that this increased flexibility will increase ambiguity about monetary policy,” he said. “But the world is not simple -- the world is incredibly complex -- and to then have a framework that’s simple is desirable, but not reasonable.”

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