Stefan Ingves: Monetary policy in an uncertain economic policy landscape Speech by Mr Stefan Ingves, Governor of the Sveriges Riksbank and Chairman of the Basel Committee on Banking Supervision, at the West Sweden Chamber of Commerce, Göteborg, 14 October 2014. *  *  *  Accompanying slides can be found on the Sveriges Riksbank’s website: http://www.riksbank.se/en/Press-andpublished/Speeches/2014/Ingves-Monetary-policy-in-an-uncertain-economic-policy-landscape. Continued low repo rate so growth and inflation can rise At the beginning of September, we members of the Executive Board of the Riksbank decided to allow the repo rate to remain at 0.25 per cent so that the currently low inflation will rise towards our target of 2 per cent. The low inflation we have today reflects the weak developments in economic activity both in Sweden and abroad. In this weak economic situation, companies have found it difficult to pass on their increased costs to higher consumer prices. However, as economic activity strengthens and demand rises, companies will have greater opportunity to raise their prices, which will contribute to higher inflation. We are expecting this to happen as economic activity abroad strengthens in the coming years. However, the world is somewhat out of step. While the signals from the United States are strong, developments in the euro area are surrounded by storm clouds, which can be seen in confidence indicators such as the purchasing managers’ index for the manufacturing industry. The subdued confidence in the euro area is probably because uncertainty over what direction events will take is unusually great.

Although the world economy froze significantly in the last year, other important dimensions of the external scenario, such as the terms of trade and international financial conditions, took a course that is favorable to us. Actually, Chile’s economic performance has been quite different from that of many other countries. The main advanced economies are still struggling with the consequences of the financial crisis that resulted in the world recession of 2009. They have a long road ahead to resolve the imbalances and weaknesses associated with this situation before they can resume sustained growth. The Eurozone countries have made progress in resolving their fiscal and financial problems, as well as strengthening the institutional pillars of the monetary union. These steps have been welcome by the markets, but the efforts must continue. Achieving a solution is a slow, costly and complex process, considering the great number of players involved. There is also the ongoing deterioration of the economic situation, which only makes things worse and complicates the required adjustments. Countries suffering negative growth rates and high unemployment for too long already cannot easily implement new austerity measures. Furthermore, the core European economies, which until recently had been relatively spared of the recession of the peripheral countries, have begun showing signs of weakness. Accordingly, the risks in the Eurozone remain. In the United States, the recovery of output and demand is weak, insufficient to quickly absorb its high unemployment.