December 12, 2016 / 8:10 AM / 3 years ago

RPT-Inquiry to probe Swedish's targets, independence - sources

(Repeats text unchanged)

By Johan Sennero

STOCKHOLM, Dec 9 (Reuters) - A commission due to examine Swedish monetary policy will scrutinise the Riksbank’s targets and tools, its independence, responsibility for financial stability and its role in international organizations such as the IMF, a source said on Friday.

The centre-left government is likely to officially appoint the parliamentary commission next Thursday, sources familiar with the matter said, after an independent review this year recommended sweeping changes in how the central bank operates.

The inquiry and legislative changes it is likely to lead to could shape monetary policy in the coming decades, with the Riksbank’s targets one of the key issues to be investigated.

The Riksbank has been under fire for years for undershooting its 2 percent inflation target and an independent report by former Bank of England Governor Mervyn King and U.S. economist Marvin Goodfriend recommended extensive changes to the central bank framework.

The review recommended in January that the Riksbank be given more flexibility around its inflation target and have a broader focus in times of crisis.

“The commission will be based on Goodfriend and King’s report and the problems they highlight,” a second source said.

The bank has slashed interest rates to a record low of -0.50 percent and launched a large-scale quantitative easing programme in a bid to revive inflation.

Since the Financial Supervisory Authority, a financial watchdog, was given responsibility for financial stability, the Riksbank has steered away from considering such issues.

But the King and Goodfriend report suggested the central bank’s mandate should include financial stability and that it needed formal powers to achieve that, something Riksbank Governor Stefan Ingves has long advocated.

The commission will also look at the division of responsibility for exchange rate policy between the government and central bank, a key issue since the Riksbank has given its head a mandate to intervene in the currency market if needed.

King and Goodfriend suggested organisational changes at the bank including reducing the number of members on its board. The commission will have no specific instructions regarding the organisation other than to review it, however, the sources said.

A finance ministry spokeswoman declined to comment.

The sources said there is political agreement to ask Mats Dillen, a former head of government think-tank the National Institute for Economic Research to lead the commission.

Dillen, 55, told Reuters he had not been officially asked to lead it.

“The government might wait a little while to announce Dillen, but everyone has agreed that he should lead the commission,” one source said. (Additional reporting by Daniel Dickson; Editing by Niklas Pollard and Hugh Lawson)

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