Erik Thedéen became head of the Riksbank at the turn of the year, in a situation with both high interest rates and negative growth. Since last May, the Riksbank has raised the key interest rate from 0 to 3 percentage points. The goal of the increases is to bring down inflation, which is currently at 9.3 percent, to the Riksbank’s target of 2 percent.
By Erik Thedéens first interest rate announcement in February, the key interest rate was raised by 0.5 percentage points, from 2.5 to 3 percent. He then announced a new increase of 0.25 or 0.5 percentage points in April. Since then, underlying inflation has risen more than expected, both in Sweden and in the Euro area. But Erik Thedéen says that the April forecast still stands.
– That expectation stands up quite well. It is a bit generally held then, but that there will be an increase and that it will be 25 or 50. I said that then and I say it now, says Erik Thedéen.
The Riksbank has received criticism both from assessors who believe that the sharp interest rate increases risk knocking out households and businesses and that the Riksbank should therefore not raise more – and from those who, on the contrary, believe that the Riksbank should raise faster to bring down inflation. Erik Thedéen says that they are making an overall assessment of various factors and that the assessment does not currently justify any course change.
– Inflation is so much above the target and the indicators for the Swedish economy so far are not so dramatically negative that it would change the forecasts we have for key interest rate changes, says Erik Thedéen.
The governor of the Riksbank believes that inflation is so widespread in the economy that it justifies continued higher interest rates.
– It’s not just that the meat has gone up or the milk prices have gone up, but it’s widespread pretty much everywhere. And this also means that the rise is in some sense more difficult to slow down. So the power of this rise has surprised the Riksbank and has surprised all the world’s central banks.
Two percent inflation until the end of the year
Today, inflation (KPIF) stands at 9.3 percent. Erik Thedéen says he thinks it will drop quickly during the year.
– We are predicting a rather sharp decline in inflation, so we believe that it will begin to approach two percent already by the end of the year. If you look at KPIF, i.e. what also includes energy, then it is down to two percent already by the end of the year, according to our forecast, which is uncertain. If we look at the exclusive energy, it will take another six months. So it is a sharp decline that we see ahead of us.
“Dangerous Combination”
Swedish households are highly leveraged compared to households in other countries. Erik Thedéen thinks that people should learn from the dramatic events of the past year that led to rapidly rising interest rates. Having a high loan-to-value ratio on your home and a variable interest rate is a dangerous combination in such a situation, he thinks.
– I think we need to have a proper discussion about indebtedness and fixed interest rates and what we should do more to get a healthy development going forward, says Erik Thedéen.
Erik Thedéen became head of the Riksbank at the turn of the year, he was director general at the Financial Supervisory Authority before that. He was interviewed in his then role in Ekot’s Saturday interview last autumn.
Guest: Erik Thedéenhead of the Riksbank
Host: Catherine von Arndt
Comment: Kristian ÅströmEkot’s economic commentator
Producer: Maja Lagercrantz
Technician: Victor Ubeira
The interview was recorded on Friday 3 March at 10.15am. The interview is not edited.
Source: ICELAND NEWS
