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, goteborg, 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. this is partly because of the conflict in ukraine and the remaining questions regarding european banks ’ balance sheets. the public finance situation is not entirely clear in all of the countries either. but once this uncertainty has calmed, developments in the euro area may also pick up, as we are expecting that monetary policy will remain very expansionary, fiscal policy will ease and credit granting will function better. the currently weak development in the euro area is of course also leaving its mark on the swedish economy. the development of exports is weak, which is in turn holding back investment. exports will not pick up again until economic activity abroad strengthens and it may take a year or so before export growth returns to a normal rate. but then investment is also likely to pick up as interest rates are low and the funding opportunities are good. demand from our most important trading

lending to consumers, while the second is a national and international borrowing market. mortgage institutions'borrowing in foreign currency amounted last year to around 20 per cent but lending in foreign currency was negligible. if mortgage institutions on account of their size can obtain better terms in the borrowing market it should, given the competition in the mortgage market, be passed on to consumers. although mortgages are a relatively simple, standardised financial product that should be well suited for selling over national boundaries, such cross - border activities have so far been limited. the relatively small number of participants in the mortgage market both in sweden and other countries can be explained by the fact that these markets are most often highly national in nature with distinctive national characteristics. the sluggishness is due in part to the difficulty in comparing the value of collateral under different national legal systems. this has implied that it is often domestic participants that are in competition in mortgage markets. in europe, national mortgage markets are rather different. this is mainly because factors such as regulations, tax legislation, market structure, bureaucracy and corporate cultures are different in different countries. moreover, it means that the costs of entry are high for new participants, particularly for foreign competitors, not least because of marketing. the effect of distinctive national features on the market has also been apparent to swedish participants that have set up businesses abroad and then operated under other regulatory frameworks and according to other practices. another limiting factor is the fact that as long as sweden remains outside the euro area, foreign companies that wish to enter the swedish mortgage market will have to provide loans in swedish kronor, as swedish borrowers do not generally want to expose themselves to exchange rate risk. however, should sweden join the euro, the interest rates offered by lenders in the different countries of the euro area will become directly comparable. with a single currency, it would be easier for borrowers to judge which institution in the euro area offers the best terms. swedish borrowers would be able to take loans in euro without exposing themselves to currency risk, and the availability of potential lenders would increase. differences in regulations and taxation systems, however, would continue to constitute a limitation on increased competition. challenges for swedish housing finance ahead of the future looking toward the years ahead, developments in the housing finance market will be driven by a number of powerful forces : continued balance sheet adjustments, the effects of the continued internationalisation process in europe and new rules for financial institutions. i shall concentrate on these three challenges. challenge 1 -