flodén: the economic situation and monetary...
TRANSCRIPT
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Martin Flodén Deputy Governor
The economic situation and
monetary policy
BNP Paribas Stockholm
November 20, 2014
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Economic activity improving but inflation is too low
Zero repo rate until mid-2016
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Low inflation in Sweden CPIF, annual percentage change
Note: The CPIF is the CPI with a fixed mortgage rate. Sources: Statistics Sweden and the Riksbank
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Inflation low abroad too Percentage change
Note: Euro area refers to HICP and USA refers to CPI. KIX is an aggregate of the countries that are important to Sweden's international transactions.
Sources: Bureau of labour statistics, Eurostat, national sources and Statistics Sweden
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Note: Quarterly changes in per cent calculated as annual rate, seasonally-adjusted data. The KIX is an aggregate of the countries that are important to Sweden's international transactions. Forecasts from PPR October.
Sources: Bureau of Economic Analysis, Eurostat, national sources and the Riksbank
Other countries recovering – but slowly and out of step Quarterly changes in per cent
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Monetary policy also out of step… Policy rate, per cent
Note: Lines refer to future rates estimated November 11 and broken lines refer to before the repo-rate decision in October.
Sources: Reuters and the Riksbank
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…which gives increasing spreads 2-year government bonds, per cent
Sources: Macrobond and the Riksbank Note: Implied zero coupon rate from government bonds.
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Weak exports, but strong households in Sweden Annual percentage change
Exports Consumption
Note: Annual percentage change, seasonally and calendar-adjusted. The broken blue line represents the average for the period Q1 1994 –Q2 2014.
Sources: Statistics Sweden and the Riksbank
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Continued labour market improvement Per cent
Employment rate Unemployment rate
Note: Per cent of population and labour force respectively, aged 15-74 Sources: Statistics Sweden and the Riksbank
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Note: Refers to expectations among market participants. Source: TNS Sifo Prospera
Important to have firmly-anchored inflation expectations Per cent
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Per cent
Note: Forecast refers to quarterly data, outcome refers to daily data. Source: The Riksbank
Low repo rate over a long period of time
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Monetary policy when the interest rate is zero
The low repo rate and the repo-rate path are deemed to be enough to make inflation rise towards the target
The repo rate may be held low even longer
Possibility that further measures will be taken
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Household indebtedness
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Sweden: my summary
Problems
High household debt Little amortisation Tax incentives
Housing Rising prices Rent control Low construction
Mortgage markets Adjustable rates Short, market-based, funding
Mitigating factors
High household savings Strong public finances Current account surplus Low construction
Bloated balance sheets Maturity mismatch
…
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Rising prices, particularly on tenant-owned apartments Index, 2005 = 100, seasonally-adjusted data
Note: Disposable income expressed as a four-quarter moving average. Sources: Statistics Sweden, Valueguard and the Riksbank
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House prices and household debt are high and rising Per cent, Index 1981=100
Sources: Statistics Sweden and the Riksbank
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Economies with high debt are more vulnerable to shocks Consumption growth 2007-2012, adjusted for other contributing factors
Note: Consumption growth has been adjusted for the CA balance, debt growth and consumption growth prior to 2007
Source: Flodén, M. (2014), ”Did Household Debt Matter in the Great Recession?”
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A large proportion of mortgages have adjustable interest rates Per cent
Sources: Statistics Sweden and the Riksbank Note: Per cent, in stock of mortgages. Adjustable rate refers to mortgages with interest-rate fixation of 3 months or shorter.
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Little amortisation Percentages
Source: The Riksbank Note: Proportion of mortgage borrowers that has increased, decreased or kept their debts unchanged between 2012 and 2013, and calculated repayment rate.
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Amortisation: the FSA’s proposal
Finacial Supervisory Authority proposed new amortisation requirements on November 11
Applies to new mortgages only
If 70%<LTV<85% amortise 2% of the mortgage If 50%<LTV<70% amortise 1% of the mortgage If LTV<50% no amortisation requirement
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The effects of different amortisation requirements on the debt ratio Percentage points deviation from a base scenario
-35
-30
-25
-20
-15
-10
-5
0
0 5 10 15 20 25 30 35 40 45 50Number of years from introduction of amortisation requirement
Financial Supervisory Authority
Source: Riksbank
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The way forward?
Main objective: prevent unsustainable increase in household debt
Policy action needed now But this will be a gradual process Several measures will be needed
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The way forward?
Amortisation
Interest-rate deductability?
Loan-to-value ceiling complemented by loan-to-income ceiling?
Increase the proportion of fixed rate mortgages?
Bank funding, longer maturity?
Supply-side measures to increase the supply of housing