Clashes in Swedish central bank as governors point figures at each other over wrong policies

Friday, 10 August 2012
There is an underground Volcano in the Swedish central, the Riksbank, as the policy directors there pointing accusing fingers at each other over wrong policies the bank has been pursuing.

One of the core accusation is that the Bank has been pursuing the wrong monetary policy with high interest rates. Therefore, unemployment has been unnecessarily high in the past 15 years - nearly 40,000 more people unemployed than if interest rates were lower.

This comes from Deputy Governor, Lars EO Svensson, who would like to see more researchers in the Riksbank's management system.

Since the summer of 2010 there has been policy power struggle within the General Executive Board of the bank between those who want to lower interest rates and those who did not want it to.
 
The majority of the Executive Board, the Governor, Stefan Ingves, and his three conspirators members have wanted the rate not to be lowered. They fear that a lower interest rate may mean that the price rally in components such as housing could lead to a housing price bubble leading to a crash.

Deputy Governor members,  Lars EO Svensson and Karolina Ekholm have been running the other line. They want the rate to be lowered so that it becomes cheaper for companies to borrow and invest so that they can hire more.

Today's Swedish interest rate is higher than in comparable countries in the world. Lars EO Svensson believes that it is at least 0.5 percentage points too high and that it keeps unemployment up.

1.5 percent interest rate is a very high rate of interest at present, compared to, for example, interest rates in the U.S. and euro area countries. The spread means that it pays for foreign investors to invest in Krona and then strengthened the local currency. Inflation will be lower and the recovery slowed down while unemployment remains high - and that is exactly what has happened, according to Svensson.

He believes that the Governor majority lacks good and convincing reason to keep interest rates high. According to Lars EO Svensson, there is no price bubble in housing sector and he does not believe that the interest rate is the right weapon to use in such a situation.

Inflation has been low for the past 15 years and the unemployment rate averaged 0.8 percentage points too high, almost 40 000 more have been unemployed on average during the period than if the interest is kept lower.

Despite the contradictions of the Riksbank,  Svensson has no plans to quit.
by Scancomark.se Team