rfr · H30WRFR7 · 2016-01-19 00:00:00 — Outcomes extend up to the end of the first quarter of 2015 for GDP and up to the end of the second quarter for inflation and policy rates. Source: Aranki, and , “An Assessment of the Riksbank’s International Forecasts,” Economic Commentaries, the Riksbank, No. 14, 2015, 4, Figure 2 Figure 11: Accuracy and Bias in Various Forecasts for Foreign GDP and In- flation 2007-2014 (The notes for Figure 11 follow the second panel on the following page.) Figure 11: Accuracy and Bias in Various Forecasts for Foreign GDP and In- flation 2007-2014 (cont.) KIX-2 refers to KIX weighting of the euro area and . CE=Consensus Economics, FiD=Ministry of Finance, , LO=Swedish Trade Union Confederation, NDA=Nordea, RB=The Riksbank, SHB=Svenska , of . Source: Aranki, and , “An Assessment of the Riksbank’s International Forecasts,” Economic Commentaries, the Riksbank, No. 14, 2015, 4, Figure 5 Figure 12: CPI, CPIF and CPIF excluding energy, 2005-2015 Figure 13: CPIF Forecasts and Outturns, January 2011 to 2015 Source: Löf, , “Recent Inflation Outcomes and Forecasts,” Economic Commentaries, the Riksbank, No. 4, 2015, 7, Figure 2 Figure 14: Successive Forecasts in 2011-2012 for CPIF Inflation in 2012 Annual percentage change, annual averages Other analysts refers to the Swedish , search, the Swedish Trade Union Confederation (LO), Nordea, , , the of . The CPIF is the CPI with a fixed mortgage rate. Source: Account of Monetary Policy 2012, the Riksbank, Figure 4.2 Figure 15: Successive Forecasts in 2013-2014 for CPIF Inflation in 2014 Annual percentage change, annual averages Other analysts refers to Swedish , , Swedish Trade Union Confederation (LO), Nordea, , , the of . The CPIF is the CPI with a fixed mortgage rate. Source: Account of Monetary Policy 2014, the Riksbank, Figure 2.21 TABLES AND FIGURES 2015/16:RFR7 Figure 16: Accuracy and Bias in Forecasts of CPIF Inflation, Various Forecasters 2008-2014 Accuracy (Adjusted mean absolute error) Systematic error (Mean error) FiD = Swedish , = , KI = , LO = Swedish Trade Union Confederation, RB = the Riksbank, SHB = , SN = of = . Source: Account of Monetary Policy 2014, the Riksbank, Figure 4.2 Figure 17: Accuracy and Bias in Forecasts of GDP Growth, Various Forecasters 2007-2014 Accuracy (Adjusted mean absolute error) Systematic error (Mean error) See Figure 16 for an explanation of the abbreviations. Source: Account of Monetary Policy 2014, the Riksbank, Figure 4.3 Figure 18: Accuracy and Bias in Forecasts of Unemployment, Various Forecasters 2007-2014 Accuracy (Adjusted mean absolute error) See Figure 16 for an explanation of the abbreviations. Source: Account of Monetary Policy 2014, the Riksbank, Figure 4.4 Terms of Reference of the Review An independent Riksbank with price stability objective and shared responsibility for financial stability The Riksbank ('s central bank) is an authority under the Riksdag with responsibility for the Swedish monetary policy. Since 1999, the Riksbank has had an independent status in relation to the Riksdag and the Government, and under the Riksbank Act (1988:1385), its objective is to maintain price stability. According to the preparatory materials, the Riksbank should also, without neglecting the objective of price stability, support the aims of general economic policy with the purpose of attaining sustainable economic growth and high levels of employment. The Riksbank has formulated the operative target of the monetary policy itself. This is an inflation target, according to which the annual change in the consumer price index (CPI) is to be 2 per cent. This target started to apply from 1 January 1995. The Riksbank has what is known as a flexible inflation target policy. In brief, this means that at the same time as it seeks to fulfil the inflation target with its monetary policy, it also aims to stabilise production and employment around long-term, sustainable development paths. When decisions are made, assesses what repo rate and what future interest rate path are necessary to ensure a well-balanced monetary policy, that is, a balance between stabilising inflation around the inflation target and stabilising the real economy. Under the Riksbank Act, the Riksbank should also promote a safe and efficient system of payments. According to the preparatory materials to the Riksbank Act, this is a fundamental task of the Riksbank, but not actually one of the objectives of its activities. Neither the Act nor the preparatory materials provide a closer description of what is included in the task of promoting a secure and efficient system of payments. According to the Riksbank´s own definition of the task it is responsible for promoting financial stability and that payment flows in society should function smoothly. The Riksbank’s practical work within the field includes issuing banknotes and coins, maintaining a central system of payments, analysing and monitoring the financial system, influencing regulatory frameworks and legislation, providing information about and warnings of risks and providing recommendations for measures. An important aspect of the stability efforts involves dealing with crises in the financial system. The Riksbank Act gives the Riksbank the opportunity to grant credits on special terms, i.e., of serving as a 1 TERMS OF REFERENCE OF THE REVIEW lender of last resort to institutes with liquidity problems and that pose a threat to financial stability. Together with the central banks in all the EU member states, the Riksbank is part of System of Central Banks (ESCB). ESCB and the Eurosystem (and the central banks in the countries that have adopted the euro) are regulated by means of the Treaty on European Union and a special statute which is annexed to the Treaty. The main objective of the central banks in the ESCB is to maintain price sta- Without neglecting this goal, the ESCB is to support general financial policy in the Union with the purpose of implementing the Union's objectives. Since the Riksbank was granted independent status, the Riksdag’s has conducted an annual evaluation of ’s monetary policy. has also carried out two external and independent evaluations of the Riksbank and monetary policy. The first was undertaken by Professors and . This evaluation covered the period 1995–2006 and analysed, among other things, the monetary policy pursued during the period, the formulation of the inflation target and the Riksbank’s preparation and decision-making process (2006/07:RFR1). The second evaulation was carried out by Professors and . This evaluation concerned the period 2005–2010 and analysed, among other things, the Riksbank’s actions during the financial crisis in 2007–2009 (2010/11:RFR5). In the spring of 2007, in connection with the Riksdag’s consideration of the first external evaluation, the Committee decided that an external and independent evaluation of 's monetary policy would be conducted every four years. New evaluation for the period 2010–2014 The current evaluation is to examine the Swedish monetary policy between the years 2010 and 2014. The period is characterised by the aftermath of the acute stage of the international financial crisis, a crisis in large parts of banking system and sizable fluctuations in the development of the real economy. The period is also characterised by extensive stability measures and an ensuing broad debate on the central banks’ goals, means and responsibility for financial stability. In the debate has, among other things, focused on how monetary policy can, or should be used to control high debts in the household sector. In the wake of the financial crisis, a comprehensive review and amendment of the financial regulatory framework at all levels is taking place, both internationally and in the EU. The review also covers the field of financial stability. Among other things, it is about looking over preventive measures and the work TERMS OF REFERENCE OF THE REVIEW 1 with crisis management. A new policy area – known as macro-prudential supervision – is developing alongside traditional financial supervision, which focuses on the situation in individual institutes. In the autumn of 2013, the announced that the Swedish Financial Supervisory Authority (FI) is to have an overall responsibility for macro-prudential supervision in , as well as for the various tools in this field. At the same time, a new authority was established, the . The Council consists of representatives of the Government, the Fi- nancial Supervisory Authority, the Riksbank and the National Debt Office. is to meet on a regular basis and, when necessary, in order to discuss matters relating to financial stability and the need for measures, partly to counteract the development of financial unbalances, and partly to deal with potential financial crises. The information and discussions from the Council’s meetings are to be published no later than two weeks after the meetings. The purpose of the evaluation is to examine the implementation of the Swedish monetary policy and the outcome of the monetary policy during the period 2010–2014. Another purpose is to analyse the experiences for monetary policy that can be drawn from the financial crisis. The evaluation also aims, in the light of the financial crisis, to derive new knowledge, on a scientific basis, of the framework and formulation of ’s monetary policy. The knowledge and evaluation are to be disseminated to a broader public. The evaluation should be conducted according to the following guidelines: •The evaluators shall analyse whether ’s monetary policy has been well-balanced and has achieved its objectives during the period 2010– 2014. •The high levels of household debt and the risk of future financial instability has had a significant influence on ’s decisions on the interest rate during the evaluation period. The evaluators shall assess ’s decision to take into account the risk of high level of debt in its interest rate decisions. The evaluators shall also assess how well the Riksbank has succeeded in communicating to markets and the public why, and in what way, it has chosen to take the high level of debt into account in its interest rate decisions. •On the basis of international experiences and topical academic research, the evaluators shall discuss whether, how and to what extent a central bank 1 TERMS OF REFERENCE OF THE REVIEW should take financial stability and high levels of debt into account when determining its monetary policy. •Since the autumn of 2013, the main operative responsibility for macroprudential supervision and macro-prudential supervision tools lies with the Swedish Financial Supervisory Authority, with regular consultations in the . The evaluators shall discuss the impact of this division of responsibilities on the Riksbank, and the role and formulation of the monetary policy. •The Riksbank is one of ’s most important public authorities. During much of the evaluation period, the Riksbank’s has had differences of opinion regarding the formulation of ’s monetary policy. The evaluators shall assess whether the discussions and the working climate in the Riksbank and its have been open and constructive during this period. •In the wake of the financial crisis, a debate has emerged, among other things, on inflation target policy and the scope for monetary policy. From this perspective, the evaluators shall examine and analyse the formulation of the Swedish inflation target. •The Riksbank has what is known as a flexible inflation target policy. Ac- cording to the Riksbank, this means that it also seeks to stabilise production and employment in society around long-term, sustainable development paths, without neglecting the inflation target. The evaluators shall examine and analyse the formulation of these “secondary objectives”. Is there reason to further develop or give concrete form to the flexible inflation target policy in order to make ’s monetary policy more effective and to increase the opportunities to evaluate the policy? The Riksbank’s forecasts •The evaluators shall examine the Riksbank’s forecast activities. •In the examination, special emphasis shall be placed on the inflation forecasts. The evaluators shall examine the outcome of the inflation forecasts and shall analyse and assess the Riksbank’s methodology for forecasting inflation. •The evaluators shall propose amendments and improvements within the evaluated areas. This also applies to possible suggestions for amendments to the Riksbank Act or other relevant legislation. •The evaluation shall be presented in the form of a written report. TERMS OF REFERENCE OF THE REVIEW 1 •Since the evaluation is intended for a broader public dissemination, the evaluators shall write the report in an easily comprehensible and structured way. Working methods and reports •The evaluation will start not later than in the beginning of 2015. •The evaluators will have access to office assistance on a half-time basis. The resource will be placed at the Secretariat of assist the evaluators with shorter translations, information and background materials that the evaluators considers necessary for the evaluation. •An interim report on the development of the assignment shall be sent to the Secretariat of in the middle of 2015. •The final evaluation shall be submitted in writing and electronically to not later than 2015. It will then be translated and published in the form of a report for a broader public dissemination. •The evaluation will be considered by in 2016. After submitting the evaluation to nance, the evaluators shall be prepared to participate in press conferences on the evaluation and at a public hearing on the findings of the evaluation. in Swedish Monetary Policy 2010-2015 In coordination with other central banks, the Riksbank confirms the expiration of its temporary liquidity swap line with on February 1, 2010. decides to cease offering loans at a maturity of 12 months but continue to offer var- iable-rate loans at maturities of three and six months. These loans will be offered until the end of October 2010, at slightly higher interest rates than previously. decides to appoint a commission of inquiry into the risks in the Swedish housing market. decides to hold the repo rate unchanged at 0.25 per cent. The repo rate path is revised so that increases would begin slightly sooner than had been forecast earlier, while the forecast in the longer run is adjusted slightly downwards. decides to keep the repo rate unchanged at 0.25 per cent and the repo rate path as in the February forecast. decides to cease offering loans at maturities of both three and six months, but replaces these with variable-rate loans at a maturity of 28 days. decides to remove the tolerance interval (+/-one percentage point) from the specification of the monetary policy objective. An update of the document ”Monetary Policy in ”, which describes the Riksbank’s monetary policy objective and strategies, is published. decides to raise the repo rate by 0.25 of a percentage point to 0.5 per cent. The repo rate path is adjusted downwards in the longer run. decides to increase the price of 28-day loans in Swedish kronor. The supplement over and above the average repo rate during the maturity of the loans will be increased to 0.50 percentage points. SWEDISH MONETARY POLICY 2010-2015 2 decides to raise the repo rate by 0.25 percentage points to 0.75 per cent. The repo rate path is the same as in . decides to raise the repo rate by 0.25 of a percentage point to 1.0 per cent. The repo rate path is adjusted downwards. The Riksbank holds a workshop on “Housing markets, monetary policy and financial stability” for invited participants and speakers, as part of the ongoing inquiry into risks in the Swedish housing market. decides to raise the repo rate by 0.25 of a percentage point to 1.25 per cent. The repo rate path is left in principle unchanged. The Swedish Bankers’ Association issues guidelines concerning mortgages. According to the guidelines, new mortgage holders shall amortize their mortgages down to 75 per cent of the property’s market value. decides to raise the repo rate by 0.25 percentage points to 1.5 per cent. The repo rate path is adjusted upwards. The findings of the Riksbank’s commission of inquiry into risks on the Swedish housing market () are published. decides to raise the repo rate by 0.25 percentage points to 1.75 per cent. The repo rate path is held unchanged. decides to raise the repo rate by 0.25 percentage points to 2.0 per cent. The repo rate path is held unchanged. decides to hold the repo rate unchanged at 2 per cent. The repo rate path is adjusted downwards. , the and the Riksbank advocate that the capital adequacy requirements for the four major banking groups shall be at least 10 per cent of their risk-weighted assets from 1 January 2013, and 12 per cent from 1 January 2015. These levels include a capital conservation buffer of 2.5 per cent, but no countercyclical buffer. The Swedish proposal goes further than III, both with regard to the levels and when they are introduced. decides to lower the repo rate by 0.25 percentage points to 1.75 per cent. The repo rate path is adjusted downwards. 2 SWEDISH MONETARY POLICY 2010-2015 The Riksbank and establish a council for cooperation on macro-prudential policy, as a forum where assessments of risk and questions regarding macro-prudential policy will be discussed jointly. decides to lower the repo rate by 0.25 percentage points to 1.50 per cent. The repo rate path is adjusted downwards. decides to borrow the equivalent of billion in foreign currency through the National Debt Office in order to restore the level of the foreign currency reserve. decides to hold the repo rate unchanged at 1.50 per cent. The repo rate path is also unchanged. decides to establish a securities portfolio to a value of billion, with the aim to ensure that the required systems, agreements and knowledge are in place if it becomes necessary to rapidly take extraordinary measures in the future. decides to hold the repo rate unchanged at 1.50 per cent. The repo rate path is adjusted downwards. decides to lower the repo rate by 0.25 percentage points, to 1.25 per cent. The repo rate path is adjusted downwards. decides to restrict the types of collateral for loans provided by the Riksbank. decides to hold the repo rate unchanged at 1.25 per cent. The repo rate path is adjusted downwards. The Riksbank publishes a report on the Swedish benchmark rate Stibor. Although there are no signs of any manipulation of Stibor, the Riksbank recommends that Stibor should be reformed to remedy some deficiencies in the framework. decides to reinforce the foreign exchange reserve with the equivalent of billion. decides to lower the repo rate by 0.25 percentage points to 1.0 per cent. The repo rate path is adjusted downwards. SWEDISH MONETARY POLICY 2010-2015 2 presents its findings on part of its work. The report focuses on preventing financial crises and managing liquidity disruptions. proposes a macro-prudential council for developing expertise, analysis and policy discussion and a new description of the Riksbank's remit for its work on financial system stability. The Commission of inquiry into the Riksbank’s financial independence and balance sheet presents its proposals. decides to hold the repo rate unchanged at 1.0 per cent. The repo rate path is adjusted marginally downwards. The Riksbank's payment system () encounters operational disruptions. The Riksbank decides to transfer to contingency routines, which will allow all payments made in the system during the day to be implemented. decides to hold the repo rate unchanged at 1 per cent. The repo rate path is adjusted downwards. decides to hold the repo rate unchanged at 1 per cent. The repo rate path is also held unchanged. The Swedish Government presents its proposal for the allocation of responsibility and work on macro-prudential policy in . A formalized financial stability council will be established. The FSC shall function as a forum where representatives of the government, (the Swedish Financial Supervisory Authority), the Debt Office and the Riksbank meet regularly to discuss questions of financial stability, the need for measures to counteract the build-up of financial imbalances and, in the event of a financial crisis, the need for action to handle such a situation. Meetings of the Council will be chaired by the Minister for Financial Markets. (the Swedish financial supervisory authority) will be assigned the main responsibility for deciding on macro-prudential measures. decides to hold the repo rate unchanged at 1 per cent. The repo rate path is also held unchanged. The Swedish Bankers’ Association sharpens its guidelines. New mortgage holders shall amortize their mortgages down to 75 per cent of the property’s market value within a 10-15 years span. Furthermore, an amortization plan shall specify amortization needs for loan-to-value ratios below 75 per cent. 2 SWEDISH MONETARY POLICY 2010-2015 decides to hold the repo rate unchanged at 1 per cent. The reporate path is adjusted marginally downwards. The Riksbank revises its communication policy, which was adopted in 2008. Now with a greater focus on dialogue in order to better explain and clarify the Riksbank's tasks and operations. The Swedish Government decides that (the Swedish financial supervisory authority) is responsible for taking action to counteract financial imbalances in order to stabilize the credit market, but with regard to the effects on the economic development. decides to lower the repo rate by 0.25 percentage points, to 0.75 per cent. The repo rate path is adjusted downwards. The Swedish Government decides to set up a stability consisting of a council (the ), a preparatory committee and a secretariat. decides to hold the repo rate unchanged at 0.75 per cent. The repo rate path is also held unchanged. The Swedish Bankers’ Association sharpens its guidelines further. New mortgage holders shall amortize their mortgages down to 70 per cent of the property’s market value within a 10-15 years span. Furthermore, an amortization plan shall specify amortization needs for loan-to-value ratios below 70 per cent. decides to hold the repo rate unchanged at 0.75 per cent. The repo rate path is adjusted downwards. decides to lower the repo rate by 0.5 percentage points to 0.25 per cent. The repo rate path is adjusted markedly downwards. presents its final report, which focuses on how banks in crisis should be managed. decides to hold the repo rate unchanged at 0.25 per cent. The repo rate path is adjusted marginally downwards. The Swedish Bankers’ Association decides on new guidelines according to which new mortgage holders shall amortize their mortgages down to 50 per cent of the property’s market value. SWEDISH MONETARY POLICY 2010-2015 2 decides to lower the repo rate by 0.25 percentage points to zero per cent. The repo rate path is adjusted markedly downwards. The interest-rate for fine-tuning transactions is changed to zero per cent from the previous setting of the repo rate +/- 10 basis points. The Swedish Bankers’ Association withdraws its proposal for tougher amortization guidelines after the Authority decides to investigate whether such an agreement between mortgage lenders is illegal. decides to hold the repo rate unchanged at zero per cent. The repo rate path is lowered. The interest rate for fine-tuning operations is held unchanged at zero per cent. decides to cut the repo rate to -0.10 per cent and to adjust the repo-rate path downwards. The interest rates on the fine-tuning transactions in the Riksbank's operational framework for the implementation of monetary policy are restored to the repo rate +/- 0.10 percentage point. also decides to make purchases of nominal government bonds with maturities from 1 year up to around 5 years for a sum of billion.