Riksbank officials: house price focus part of inflation balancing act

STOCKHOLM, March 16 Sun Mar 16, 2014 12:42pm EDT

STOCKHOLM, March 16 (Reuters) - Two Swedish central bank officials have rejected criticism the Riksbank has not paid enough attention to its inflation target, arguing that its focus on high house prices and household debt is part of the same balancing act.

Writing in Swedish daily Dagens Nyheter on Sunday, deputy governors Per Jansson and Cecilia Skingsley acknowledged the bank's concerns about a house price bubble had contributed to keeping rates at a higher level than would otherwise have been the case.

But, they added: "It is obvious that it is part of the Riksbank's mandate to try to reduce the risk of a development where demand and production are developing very weakly and inflation is likely to be very low."

Underlying inflation has been below the Riksbank's 2 percent target for three years and is expected to stay low for quite some time. As a result, Sweden's central bank is expected to keep its key repo rate on hold at 0.75 percent all this year, a Reuters poll of 22 analysts showed on Thursday. The Riksbank's next interest rate decision will be on April 9.

Jansson and Skingsley said there would be less need for monetary policy to manage the risks of debt and house prices if Sweden's new financial stability measures work. Sweden's Financial Supervisory Authority has introduced a cap on mortgage borrowing - 85 percent of purchase price - and also plans to increase the amount of capital banks need to cover lending risk.

"We now need to focus on the short-term inflation," they said.

The Riksbank got some breathing room in February when inflation came in closer to its forecast, after a substantially lower outcome than both the Riksbank and analysts had expected in January.

In the minutes from the Riksbank's most recent rate-setting meeting, Jansson said bringing inflation closer to the two percent target would be the top priority in his monetary policy considerations in the year ahead. (Reporting by Sven Nordenstam and Daniel Dickson; Editing by Sophie Walker)

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